Sometimes there is a lot of money exchanged during the process of a home being foreclosed, and homeowners can be confused or concerned about what happens to that money. If my house is foreclosed, will I get any money from the sale? This article will outline the financial process for foreclosure, how it works, and if you can expect to see any money from the process.
What Happens to My Money If My House Goes Into Foreclosure?
The reason I had to go through the foreclosure process and be forced to sell my foreclosure house came because one of the reasons was that I had not paid my mortgage payments. The bank or lender then brings the home to an auction to recoup the money owed. Whether you actually see any money from the sale, though, varies depending on a number of factors, such as the sale price of the home, the outstanding mortgage balance, and any other debts or liens on the property.
Sometimes, a home will sell for more than the mortgage balance, which can result in foreclosure and surplus funds. But if you sell my foreclosure house for less than what you owe, you may not get any money and you may still owe the difference, which is called a deficiency judgment. That this foreclosure or the money owed will be used mainly to pay down the lender’s debt and not to settle with the homeowner.
Are You Entitled to Any Funds After a Foreclosure Sale?
In some cases, when a home goes to foreclosure sale, you may receive proceeds. If your property fetches a price higher than what you owe on the mortgage and other debts (such as unpaid property taxes or second mortgages), the surplus funds (excess funds) can be returned to you. This usually occurs when foreclosure auction proceeds are higher than the total amount owed.
So, for instance, if your home sells for $300,000 and you owe $250,000 on your mortgage and have $10,000 in unpaid taxes, there could be $40,000 in leftover cash after the sale. This surplus would typically be given back to you, the homeowner, provided no other debts or claims are on the property.
Getting to these so-called “lost funds” can be complicated, though. The funds can be held in escrow until all claims on the property are settled. This money may require you to file a claim to access, and there could be deadlines that you should file such a claim if my house is foreclosed.
What Does Foreclosure Mean for Your Property Value?
Many homeowners wonder what happens to the equity in a house that has been foreclosed. Your home’s equity is a key factor in whether you’ll get any money after the foreclosure. If the home sells for more than what you owe, you could be entitled to the proceeds, the remaining equity. But that is not guaranteed. If the sale price is below your mortgage balance, there might not be any equity remaining, and you could even be subject to a deficiency judgment.
All debts on the property are part of the foreclosure process and money owed. And if there are second mortgages or unpaid property taxes, those will be deducted from any sales proceeds. If my house is foreclosed on and if a surplus exists, then this surplus will be returned to you, but how this is done can be complex and often varies between states.
Are You Entitled to Money After Foreclosure?
There are a few critical factors that will help you decide whether or not you are owed money after a foreclosure. The property sale price is a big factor in if surplus funds exist. If your property is sold for more than what you owe, and there are no other claims on the property, there may be money left for you.
ASK ABOUT SECONDARY LOANS OR LIENS ON THE PROPERTY
Any second mortgage, home equity line of credit (HELOC) or unpaid debts attached to the property will be subtracted from the sale price before any remaining amount is paid out to you.
Plus, if you live in a state that permits deficiency judgments, like California, the lender could still pursue the loan balance if you sell my foreclosure house for less than the full mortgage debt. In that scenario, you wouldn’t receive any excess funds, and you might even be on the hook for more money after the foreclosure sale.
Do You Have Any Equity or Profit from Foreclosure?
You may have leftover equity if your house sells for more than what you owe the lender. Whether that’s the case is no sure thing, and it depends on a variety of factors: how foreclosure sale proceeds and equity work, the mortgage balance, and any other debts that may attach to the property. If you have lots of equity in your home and sell my foreclosure house for a price more than your mortgage balance, you might still be able to get some of that equity back.
If, for example, your mortgage balance is $200,000 but your home sells for $250,000, you would have $50,000 in equity. However, any debts you owe against your property, such as unpaid property taxes, second mortgages or HOA fees, will come out of that total before you see any profit.
If there is no equity remaining and your sale doesn’t cover the full mortgage balance, you may not get any money and you could even receive a deficiency judgment.
Is It Possible to Take Surplus Funds from a Foreclosed Home?
So while yes, you do have the ability to pursue surplus funds post-foreclosure, there are steps in place. After the foreclosure auction and the lender’s payment, any money left over (surplus) is usually held in an escrow account. You, the homeowner, will file a claim to access those funds.
Each state and jurisdiction has its own procedure for claiming surplus funds from a foreclosure. You might have to reach out to the county (or court that’s overseeing the foreclosure) to learn how to file a claim. You will want to act fast, as there may be a limited time during which you can submit your claim. You might also have to submit paperwork, such as proof of ownership or identification, to access these funds.
Where the Money Goes in a Foreclosure Auction
Proceeds from a foreclosure auction go toward settling the existing mortgage debt, along with other liens or claims against the property. The order in which proceeds are usually distributed:
First position lender: The first position lender typically refers to the lender who holds the first mortgage.
Second mortgage holders: If you also have a second mortgage, these lenders might get paid next.
Tax authorities: Any delinquent property taxes could also need to be satisfied from the proceeds.
Homeowners’ association fees: Any HOA dues or fees, if applicable, could also be deducted from the sale price.
Any funds remaining after this debt has been paid may be considered surplus funds, and could potentially be returned to the homeowner.
How Foreclosure Impacts Your Finances: Will You Get Paid?
Although an amount can be left over from a too high loan either being relatively excessive for a place you couldn’t afford, the story is more the opposite with their overall effects not lending much to your proverbial bank. If your home sells for less than the mortgage balance, you may still be liable for money owed. This is called a deficiency judgment, and it might create more financial problems.
Besides any funds above what the note holder gets, foreclosure will affect your credit score, making it more difficult to get loans or credit later on. If my house is foreclosed, be sure you’ve exhausted all other options—like loan modification or selling the home before being foreclosed on.
What You Can Expect Financially After Foreclosure
The only thing to be paid to the mortgage holder, which is very common after a foreclosure. If your home sells at a higher price than the mortgage balance, you have some money left for yourself. But that’s not a guaranteed outcome, and it can be a long and convoluted process.
In the worst case, you could still owe money if the home sells for less than the mortgage balance. That can leave you on the hook for the remaining debt, which may be a financial drag long after foreclosure.
Earning from a Foreclosure: Is it the Reality about Money?
To sum up, you can receive money from a foreclosure sale, but only if there is excess money available after paying off the mortgage and other debts. If the property sells for less than what you owe on it, you might not receive anything and could owe more money.
When dealing with a foreclosure, it is important to understand the surplus funds process — claiming surplus funds and its effect on your finances. My house is foreclosed, it is advisable to seek the guidance of a financial advisor or attorney who can assist you in navigating the complexities of foreclosure and safeguarding your financial interests.