One of the greatest things about buying a house is the equity that builds over time. For those of you that are unfamiliar with equity or simply need a refresher, equity is the difference between the market value of your home and how much you currently owe on it. Equity can fluctuate based on the market conditions, most of us seen our equity disappear when the housing market crashed several years ago.
If you are facing foreclosure or even being threatened with foreclosure you have probably had at least a passing thought in regards to the equity in your home. Some homeowners wonder, do you lose your equity in foreclosure? The simple answer to this is no, you do not. No matter what happens to your home the equity is yours, it can never belong to somebody else, not even the bank when they take possession of the home.
Now even though the equity will always be yours, the foreclosure process can drastically cut into the amount of equity you are left with. In normal cases when you sell a home the money left over after paying the mortgage is yours to keep. With a foreclosure process late fees and penalties can drastically reduce the amount of equity you are entitled to, as those must be settled before you can cash out.
The issue with foreclosures and equity is that the minute you make that first late payment your equity is being reduced. Late fees are added to the total loan amount, but so are the fees that the lender can charge you for the foreclosure process, including but not limited to fees associated with selling the house at auction.
Another issue is the appraisal itself. During the auction banks do not have to accept offers based on the appraisal of the home. In many cases they are anxious to get rid of it, so they will often accept offers that are 10% below the appraised value of the home. Lenders will even accept low appraisal values so the house has a better chance of selling at auction. What this all means for you is a lower selling price, which means even less money left over after the sale.
If you don’t want to lose the equity in your home due to a foreclosure the best thing you can do is to avoid the foreclosure process. Your best chance of doing that is to call your lender to see if you can work out a repayment plan or even a loan modification that will allow you to keep the home. If that won’t work, consider selling your home in a short sale or contact a cash investor.