Selling a house in pre-foreclosure: your options and deadlines

What pre-foreclosure means

Pre-foreclosure begins when you miss mortgage payments and the servicer starts the steps that can lead to foreclosure. For most home loans, federal mortgage servicing rules generally prevent a servicer from making the first notice or filing for foreclosure until you are more than 120 days behind. During that time you'll usually receive late notices, calls and letters about options to avoid foreclosure.

After that, the process depends on your state. In some states foreclosure goes through the courts (judicial foreclosure); in others a trustee can sell the house after notices are recorded and published (non-judicial foreclosure). The names of the notices, the waiting periods and any right to catch up or redeem the house differ by state, so the dates on your own documents matter more than any general timeline. Selling a house in pre-foreclosure works best when you start early, while there's still time for the title work and closing.

First steps before selling a house in pre-foreclosure

Gather every letter and notice and write down each date exactly as shown, especially any sale date. Call your servicer, ask for the loss mitigation department, and ask for a payoff statement and a reinstatement quote, which is the amount needed to bring the loan current. Keep a log of every call and a copy of everything you send.

Then talk to someone independent before selling a house in pre-foreclosure or agreeing to anything else. A HUD-approved housing counselor can review your options at no cost, and the CFPB's counselor finder lists them by location. If you've received court papers, if a sale date is close, or if bankruptcy is a possibility, talk to a real estate or bankruptcy attorney promptly.

• Every notice from the servicer, trustee or court, with dates
• Your recent mortgage statements, which show what is past due
• A current payoff statement and a reinstatement quote
• Your loan number and the servicer's loss mitigation contact
• Any second mortgage, HELOC, tax bill or other lien

Alternatives to selling

Selling a house in pre-foreclosure isn't the only way out, and it's worth knowing the alternatives before you decide. Depending on your loan and situation, a servicer may consider a repayment plan, forbearance, a loan modification, or reinstatement if you can catch up. If you submit a complete loss mitigation application early enough, federal rules generally require the servicer to evaluate it before proceeding to a foreclosure sale. Ask the servicer for the deadline that applies to you, and get any agreement in writing.

If keeping the house isn't realistic, a short sale or a deed-in-lieu of foreclosure may be possible with the lender's approval. Each has different consequences for your credit and for any remaining balance, so ask the servicer and a housing counselor to explain them.

How selling a house in pre-foreclosure pays off the loan

When you sell, the title or closing company requests a payoff from your servicer. The payoff includes the unpaid principal, the missed payments, interest, late fees and any foreclosure costs already charged. Any second mortgage, property tax lien or judgment is paid too. Everything is paid from the sale proceeds at closing, and any money left over belongs to you.

That's the main reason selling a house in pre-foreclosure can make sense: if you have equity, a sale lets you keep it, while a foreclosure auction may sell the house for less and add more costs. A completed foreclosure also usually does more damage to your credit than a sale that pays the loan in full.

Check the numbers early. Ask the servicer for the payoff, then compare it with what the house could realistically sell for in its current condition, minus selling costs. If there is a clear margin, selling a house in pre-foreclosure can protect it. If the margin is thin or negative, talk to a housing counselor about a short sale or other options before you sign anything.

Selling a house in pre-foreclosure when you owe more than it's worth

If the payoff and other liens are more than the house can sell for, you can't close a normal sale without bringing money to closing. The usual path is a short sale, where the lender agrees to accept less than the full payoff. Short sales need the lender's written approval, take time to arrange, and may or may not release you from the remaining balance depending on the approval letter and your state's law.

Selling a house in pre-foreclosure through a short sale also means the lender reviews the offer, your hardship and your finances, so expect more paperwork than a regular sale. Forgiven mortgage debt can also have tax consequences. IRS Topic 431 and Publication 4681 explain when canceled debt is taxable and the exceptions that may apply; a tax professional can tell you how they apply to you.

Timing when selling a house in pre-foreclosure

The key date is the foreclosure sale date, if one has been set. A sale has to close before it, with enough room for the title search, the payoff request and the closing documents. A traditional listing needs time for preparation, showings and a buyer's financing, which can be hard to fit into a pre-foreclosure window. A direct cash sale removes the listing and the loan steps, which is why many homeowners consider it when the clock is short.

Tell your servicer as soon as you have a signed purchase agreement and send them a copy, along with the title company's contact details so it can request the payoff. Servicers sometimes agree to postpone a sale when a closing is scheduled, but they aren't required to, so never assume a postponement until it's confirmed in writing.

Avoiding foreclosure rescue scams

Homeowners in pre-foreclosure are targeted by scammers. Be cautious with anyone who promises they can stop a foreclosure, asks for money up front for mortgage help, tells you to stop paying or stop talking to your servicer, or asks you to sign over the deed so you can rent the house back and buy it later. Never sign a document you don't understand, and never make mortgage payments to anyone other than your servicer.

A legitimate buyer for selling a house in pre-foreclosure will put the offer in writing, name the title company, pay off your loan through that title company at closing, and give you time to have the agreement reviewed. You can confirm anything with a housing counselor or an attorney before you sign.

• No upfront fees for foreclosure help
• No deed transfers before a real closing
• All payoffs handled by a title or escrow company
• Every promise in the written contract

When selling a house in pre-foreclosure fits, and when it doesn't

Selling a house in pre-foreclosure tends to fit when you can't realistically catch up, the house has equity worth protecting, and you'd rather choose your move date than have it set by an auction. It may not be the right move if a modification or repayment plan would let you keep a home you want to keep, or if you're deeply underwater and need the lender's approval for a short sale first. If the house is in good condition and you have enough time before any sale date, listing it may net more; if time is short or the house needs work, a direct sale can be the more practical choice.

Selling to Prominent before a foreclosure sale

Prominent Cash Offer buys houses directly, as-is, in any condition, including houses in pre-foreclosure. You share the address; if the property is a fit, you receive a written cash offer with the amount and terms spelled out. There are no fees or commissions, we pay the closing costs, and you choose the closing date. Your mortgage, back payments and any liens are paid off through the title company at closing, and any remaining proceeds are yours. There's no obligation to accept, and we encourage you to keep working with your servicer and a housing counselor while you decide.