Selling before a trustee’s sale
When keeping the house isn’t possible, a sale you choose can protect the equity an auction would put at risk. Here is how that works, what a short sale is when there isn’t equity, and what to expect on timing.
We can look at your numbers together before you decide anything.
How does selling protect my equity?
Equity is the difference between what your home would sell for and everything owed against it. Behind on payments or not, that equity is yours until the property changes hands.
At a trustee’s sale, the property is auctioned to cover the debt. Bidders usually can’t go inside or order an inspection, and they generally have to pay in cash or certified funds, so they bid with caution. If the lender’s bid is the only one, the lender takes the home. Any surplus goes through a court process, after other liens are paid.
A regular sale works the other way around. The home is prepared and shown to buyers who can walk through it and arrange financing. You set the price with your broker and choose among the offers. At closing, escrow pays off the loan, the past-due amount, and the foreclosure costs, and pays what’s left to you.
A simple way to picture it
- Sale price
- what a buyer agrees to pay
- Less the loan payoff
- principal, interest, and the past-due amount
- Less foreclosure costs
- trustee’s fees, costs the lender advanced
- Less other liens
- a second mortgage, a credit line, unpaid property tax
- Less costs of selling
- brokerage, Washington excise tax, title and escrow
- What remains
- paid to you at closing
For your home, I’ll put real figures on each line, using a written payoff statement from your servicer and recent sales of comparable homes near you. You’ll see the estimate before anything is listed.
What if I owe more than the house is worth?
Then a regular sale can’t pay the loan in full, and the answer may be a short sale. A short sale asks the lender to accept less than the full payoff and release its lien anyway. Lenders agree to them because a short sale can cost them less than a foreclosure followed by a resale.
Short sales take more paperwork and more patience. The lender will want a hardship letter, income and bank records, and the signed purchase agreement. Its review can take weeks, sometimes much longer, and the buyer has to be willing to wait. If there’s a second loan, both lenders have to agree.
Before you sign an approval, ask whether the lender will waive the remaining balance, called the deficiency, and whether forgiven debt will be reported for tax purposes. An attorney and a tax professional are the right people for those answers, and I’ll make sure you have the lender’s terms in writing to show them.
How long does it take to sell before a foreclosure sale?
It depends on the home and the date you’re working against, and nobody can honestly promise a closing by a particular day. A typical sale moves through a few stages: preparing the home and the paperwork, time on the market, a signed agreement, and then escrow, which covers the buyer’s inspection, appraisal, and loan. A cash buyer can shorten escrow. A short sale adds the lender’s review on top.
That’s why the stage of your foreclosure matters so much. Starting soon after a notice of default leaves room for an ordinary sale. Starting with a trustee’s sale date already recorded means planning around that date from the first day, with a price meant to draw offers promptly and a preference for buyers who can close on time. The servicer and the trustee hear about progress as it happens. A trustee may agree to postpone a sale when a closing is underway, but the decision is the trustee’s, so a good plan doesn’t depend on it.
If you’re not sure where you are, the Washington process timeline lays out each notice and what it means.
How I handle it, discreetly
In this situation, privacy tends to matter as much as price. Neighbors don’t need to know why you’re moving, and they won’t learn it from the marketing.
- The listing describes the home. The words “foreclosure” and “distressed” never appear in the marketing. A short sale listing tells buyers the lender must approve the sale, and that is all it says about your loan.
- Showings are scheduled around your household, with notice, and you decide whether a sign goes in the yard.
- With your written authorization, I talk with your servicer and, when needed, the trustee, so the calls don’t all land on you.
- Your file stays with the people who need it: you, me, escrow, and anyone you choose to bring in, such as your attorney or housing counselor.
If you live in the home, we’ll plan the move around the closing date so you’re not packing the night before. If it’s a rental or an inherited house, we’ll plan around the tenants’ rights or the estate’s paperwork, with the attorney involved where the law requires it.
What a sale can’t do
A sale won’t help if your goal is to keep the house. If staying is what you want, start with the options page and a housing counselor. And a sale that starts too late may not close in time. If you’re weighing it at all, the best day to call is the first day you’re unsure.