Selling Your Home in Arrears: How to Sell a Home When You’re Behind on Payments

For informational purposes only. Always consult with an attorney or financial advisor before proceeding with any real estate transaction.

Can you sell your home when you're behind on your mortgage payments? The process can seem daunting, but with the right approach, you may find solutions that help you avoid foreclosure and secure a better financial future. Understanding the options available to you, such as negotiating with lenders or seeking professional assistance, could be the key to turning your situation around.

Let's talk about what you can do when you're faced with selling a home while in mortgage arrears.

For informational purposes only. Always consult with an attorney or financial advisor before proceeding with any real estate transaction.

Selling While Behind on Your Mortgage: Key Takeaways

• You can sell a home when you’re in arrears, or behind on payments, but you’ll need to work with your lender.
• A short sale (selling your home for less than your mortgage balance) requires lender approval, working with a licensed real estate agent, setting a reasonable asking price, and targeting buyers who can afford to be patient.
• Loan modifications and refinancing are alternatives to selling your home.
• Foreclosure is the last resort, a process that (in New Jersey) is managed by the New Jersey judicial system.

Can You Sell a House in Arrears?

Yes, you can still sell your house if you're behind on mortgage payments (also known as "in arrears"). Act fast if you're in this position. Taking quick action is crucial to prevent foreclosure and alleviate financial stress. Plus, the more quickly you sell the home, the fewer payments you’ll miss, which will minimize any negative financial impact of the sale.

Selling a home in arrears isn’t without disadvantages, however. To sell fast, you may end up selling the home for less than you owe on it. In that case, you may be responsible for the difference between what the house sells for and what you owe, causing further financial strain.

To avoid this situation, you can request a short sale, which allows you to sell the home for less than what you owe, and the lender forgives the debt. However, the lender isn't obligated to allow this—and a short sale has its own downsides. You'll have to give your lender more of a say in the process, and that extends the selling timeline and chases some buyers away. If the home sale takes longer than you anticipate, every missed payment will further impact your credit score.

What Is Foreclosure?

Facing missed mortgage payments can lead to foreclosure, but homeowners have the option to sell a house in arrears before the process is completed. Foreclosure is the legal process by which the lender repossesses a property due to missed mortgage payments. It's vital to act promptly to avoid the consequences of foreclosure.

Understanding the foreclosure timeline and legal requirements is crucial when considering selling a house in arrears. Seeking professional guidance and exploring available options can assist homeowners in effectively navigating the process.

Timeline of a Foreclosure (Judicial Foreclosure)

New Jersey is a judicial foreclosure state, meaning that state courts manage the foreclosure process. Additionally, the state’s Office of Foreclosure works with the Superior Court General Equity to manage the foreclosure process. This structure contrasts with non-judicial foreclosure, which takes place outside of court and typically is completed more efficiently. While all states have structures in place for judicial foreclosure, others, including New Jersey, do not allow non-judicial foreclosures.

The foreclosure process begins with a missed mortgage payment. A Notice of Default or Intent to Foreclose is typically sent when a mortgage payment is 90 days late. However, this is just common practice, not a legal requirement. If you're discussing options with your lender already, they might not send a notice at all. But once you get that notice, the clock starts ticking. You have 30 days to bring your mortgage current, sell the home, or otherwise fix the issue.

After the Notice of Default—at least 30 days later, and no sooner than 120 days after the original missed payment—a Complaint is served, allowing the homeowner to respond in court.

Once a Complaint is served, homeowners have 35 days to file an Answer, telling the court that the lender doesn't have the right to foreclose. If they don't, or don't specifically challenge the lender's right to foreclose on their home, it counts as "uncontested." You're not obligated to file an Answer (there's a fee if you do), but not filing can make fighting the foreclosure harder.

If there's not a contesting Answer, you enter official default. The next step for the lender is to obtain a Final Judgment. This will be accompanied by a notice of your legal rights. The lender must apply for a Final Judgment and have it reviewed by the Office of Foreclosure. You can still continue attempts to prevent foreclosure and keep your home.

Under New Jersey law, if a Final Judgment is executed, the lender has the right to refuse even a full loan repayment. Filing a Chapter 13 bankruptcy before the home is sold off can still allow the homeowner to "cure the default" through a repayment plan.

After a Final Judgment, a sheriff's sale will be scheduled. The sale must be advertised for at least four consecutive weeks, and the homeowner has the right to delay the sale by up to 30 days twice by applying for a statutory adjournment. (Note: You may see this stated in older sources as two two-week periods. This was changed in 2019. The law change also gave the lender the right to delay the sale twice, and made a fifth adjournment available if the lender and homeowner both agree to use it.)

Just like when you sell with a mortgage, the proceeds are used to pay off the mortgage balance. If there's any profit left over after paying off your debt, you're entitled to receive it. If the proceeds don't cover your debt, the lender can sue for the difference, called a "deficiency judgment."

Within 10 days of the sale, the homeowner may "redeem" the foreclosure by paying off:

• The full amount of the foreclosure judgment
• All late fees and penalties on the mortgage
• The lender's legal fees and court costs, plus any property tax or interest the lender paid
• Reasonable expenses incurred by the new owner (interest, back taxes, prior liens, necessary repairs, etc.), minus any income the property produced (like rent)

Most homeowners facing foreclosure don't have this amount of cash. However, you can redeem the home by selling it to a third party or through financing. Some homeowners can even find "white knight" investors to offer a more favorable solution.

You may also file an objection to the sale, but the standards to overturn the sale are difficult to meet.

Homeowners have rights and can seek multiple avenues to ward off foreclosure. Beware of foreclosure scams and consider legal assistance for complex defense cases to navigate the foreclosure timeline effectively.

Important Deadlines in the Foreclosure Process

• 90 days after missed payment - typical minimum before a Notice of Default is sent.
• 30 Days after Notice of Default - deadline to "cure the default." If you don't, lender files an official foreclosure lawsuit, and you may become responsible for expenses like the lender's attorney fees.

After this, you'll be served a Foreclosure Complaint.

• 35 days after being served Foreclosure Complaint - deadline to file an Answer with court. If you don't, or it's marked "non-contesting," the lender requests official default.
• 60 days after being served Foreclosure Complaint - deadline to request NJ's free mediation services. This is not an Answer and does not stop foreclosure.

After the Answer period, you're served a Notice of Intention to File for Final Judgment.

• 10 days after final judgment notice - deadline to file a good faith statement that you can cure the default within 45 days.
• 14 days after final judgment notice - lender files a motion for a final judgment. You'll be mailed a copy.

After the Motion for Final Judgment is filed:

• 10 days after motion for final judgment - deadline to object to amount owed in motion for final judgment. Final judgment is entered. Once it is, you can no longer "cure" the default; you must "redeem" the property by paying the final judgment amount.

After the Final Judgment is entered, the court gives the lender a Writ of Execution, and the lender gives it to the sheriff to schedule a sale.

• 150 days after sheriff receives Writ of Execution - deadline for sheriff's sale to happen.
  • You may request two delays of 30 days (60 days total). You may request additional time, especially if you have a convincing reason to delay, but it might not be granted.
• 10 days after the sale - deadline to redeem the property.

Afterward, the deed is transferred and you negotiate move-out with the new owner. If you can't come to an agreement, the new owner requests a Writ of Possession and begins eviction proceedings.

Tips For a Short Sale

Oftentimes, a short sale is in the best interests of both the seller and the lender, especially when compared to a foreclosure. Legal proceedings are expensive and time-consuming.

When considering selling your home in a short sale, it is important to follow a few key steps:

• Ensure your lender approves the process before moving forward with the sale.
• Collaborate with a licensed real estate agent to help navigate the complexities of the process.
• Set a reasonable asking price that aligns with the current market conditions and the property's value.

It's important to be aware that a short sale is usually slower than a traditional sale. You can't just accept an offer; your lender has to review and approve it. If the buyer wants to negotiate concessions, they have to be approved by the lender first. Not all buyers are able or willing to accept a drawn-out closing deadline.

Have Your Lender Sign Off

To successfully execute a short sale, obtaining your lender's approval is crucial in selling your home for less than the mortgage amount. Lenders typically require specific paperwork, such as an offer letter, a hardship letter, and financial documents, to consider a short sale. It's important to engage with your lender early in the process and negotiate terms that work for both parties.

Unlike foreclosures, short sales have a less severe impact on credit scores, making them a more favorable option in challenging financial situations. Remember that real estate agents can provide valuable assistance in navigating the process and ensuring that all necessary documentation is available for your lender to sign off on the short sale.

Work with a Real Estate Agent

Partner with a real estate agent who specializes in short sales to efficiently navigate the intricate process and maximize your chances of a successful transaction. Look for an agent with a proven track record to ensure a smooth experience.

A skilled real estate agent can negotiate with the lender on your behalf to secure approval for the short sale. A local real estate agent is best, as they understand the local market dynamics well and can help you tailor your marketing toward the fastest possible sale.

Set a Realistic Price

It's imperative to establish a realistic price for your home by determining its fair market value. Setting a too-high price is one of the most common reasons homes don't sell quickly. Hiring a real estate agent can assist you in accurately pricing your home for a successful sale.

Your selected agent will research comparable sales in your area to accurately gauge the current market value. As mentioned previously, pricing your home competitively is crucial to attract potential buyers and expedite the short sale process.

Setting a realistic price based on these factors can increase your chances of a successful short sale and help you navigate selling a home while behind on mortgage payments.

Pursue Cash Buyers

When seeking to sell your home while behind on mortgage payments, cash buyers can provide an efficient solution. Cash buyers offer a quick and relatively hassle-free way to sell your home, especially in urgent situations. Cash buyers streamline the selling process, providing homeowners relief when facing financial distress.

Cash buyers can also be beneficial if your financial situation has caused you to defer maintenance. Selling a fixer-upper as-is can take a while on the traditional market.

By working with a cash buyer, you can avoid the lengthy process of a traditional sale and receive competitive offers promptly—though be aware that selling to a cash home buyer will typically net you a lower sale price than the traditional route. Selling your home fast for cash can be a significant advantage for those dealing with mortgage challenges.

Alternatives to Selling

There are two popular alternatives to selling: loan modifications and refinancing.

Loan modifications adjust the terms of your loan—and potentially—lower your monthly payments. Consider discussing loan modifications with your lender. Refinancing your mortgage before foreclosure can help alleviate financial strain and provide a more manageable repayment plan.

Exploring these alternatives may offer a viable solution to selling your home when faced with mortgage payment challenges.

Discuss Loan Modifications with Your Lender

Discussing loan modifications with your lender can provide a viable alternative to selling your home when behind on mortgage payments. Loan modifications offer the opportunity to negotiate adjusted payment plans with the lender, potentially resulting in lower monthly payments and extended repayment periods.

During a loan modification, missed payments can sometimes be added to the loan principal, easing the immediate financial burden. Opting for a loan modification can offer temporary relief, giving you a chance to improve your financial stability without selling your home.

Refinance Before Foreclosure

Looking to lower your monthly payments and avoid selling your home due to financial difficulties? Refinancing before foreclosure can provide a way out. By renegotiating the terms of your mortgage, you can make payments more manageable and prevent the negative impact of a foreclosure.

Be aware that if you want to sell soon after refinancing, you may lose money on the loan's closing costs and prepayment penalties. But with how badly foreclosure can affect your credit score (and thus ability to get loans in the future), it may be worth it.

To explore this option, contact your lender and consult a financial advisor. Refinancing offers a viable alternative to selling for many homeowners facing financial challenges. Take proactive steps to assess whether refinancing is a suitable solution for your situation. This approach can help you stay in your home, reduce financial strain, and work towards a more stable financial future.

Seek Assistance to Navigate Financial Difficulties

You can sell a house in arrears by working with reputable real estate professionals. Consider a short sale or explore alternatives to selling to avoid foreclosure. Remember to act quickly, engage with lenders, and seek assistance to navigate financial difficulties and protect your home. All in all, taking proactive steps and seeking help can make a significant difference.