Excess Home Equity in Foreclosure

If the home has equity, or valued at more than what is owed to the bank, do you get the equity, or is it lost to the bank during foreclosure?

2 Answers

In a foreclosure, most times you lose the equity. When most, if not all Lenders/Banks, take back your home, they turn and sell it to a department in the back for the amount you owe plus any and all attorney costs. So at this point any equity you had is forfeited.

If you have a home that has equity, your best bet is to get it on the market and try to sell itbefore the foreclosure date. Even if you have to sell it for what you owe, you will be in a better situation with your credit. You will still show the lates on your credit, but to avoid showing that the home was lost in foreclosure will put you in a better position to buy a new place faster. Normally, you have to wait 48 months after a foreclosure before you can qualify again. But to answer your question, you will most likely lose the equity.

The lender is only going to be seeking it's loses on the sale of a foreclosed property. What I mean by this is: They will be looking at:

  1. The balance of the mortgage

  2. Attorney Fees

  3. Filling Fees

  4. Other legal Fees

  5. Possibly even Commissions to Realtors that assisted in selling the home and such

If there is any money left over, you do get that money. Again, all the lender can get as far as dollars, is what is owed to them.

Now, something to keep in mind. Lenders often will have the property covered by Mortgage Insurance, which insures the lender. Here is an example: Let's say that the property in default is worth $100,000, the lender could have insurance on this property for $25,000. This means, that if the lender chooses to do so, they could sell that property for $75,000 and get the insurance for $25,000 to make them whole. Typically, lenders will try to get just below fair market value for the home, but is they need a quick sale, they do have the ability to.