I have equity in my home. Will foreclosure take it?

What the auction does to your equity

If your home is worth more than you owe, a foreclosure auction usually does not recover full value. Auction prices are typically 70 to 80 percent of retail. Whatever is left after the lender is paid is technically yours, but there is often much less left than you would expect.

Here is the math on a real-shaped example. A 300,000 dollar home with a 180,000 dollar mortgage sells at auction for 210,000 dollars. That is 90,000 dollars of your equity lost to auction buyers and the bank's process.

A private sale, even to a cash buyer at 80 percent of value, can preserve tens of thousands of dollars of your equity and keep a foreclosure off your record. It is not the best outcome in a vacuum. It is dramatically better than losing the house anyway with a foreclosure scar attached.

The credit damage is separate, and it lasts

A foreclosure stays on your credit report for seven years and drops your score by 85 to 160 points. It makes a future mortgage nearly impossible for three or more years and limits other credit for the same period. It even makes renting harder, because many landlords automatically decline applicants with a recent foreclosure.

A cash sale, by comparison, typically costs 20 to 40 points, because it is a normal sale that pays the loan off.

When selling makes sense, and when it does not

A cash sale probably makes sense if you have at least 30,000 to 50,000 dollars of equity, your foreclosure is in the final 60 days, you have already been denied a modification, or you simply want certainty instead of more phone calls.

It probably is not right if you are underwater, if you have savings strong enough to reinstate the loan, if you have only just started missing payments, or if your income is returning to normal within 60 days. In those cases other options preserve more value, and we will say so.

If you are not sure which bucket you are in, call us. We will give you an honest read even when the honest answer is do not sell to us, try a modification first.

Read the full foreclosure guide, or get a written offer so you at least know the number before your sale date.