Foreclosure equity is the value remaining in a home after the mortgage balance,
penalties, and foreclosure-related costs (fees, legal expenses) are paid following a forced sale. If the sale price exceeds these debts, homeowners are entitled to the surplus funds. With significant equity, owners can sell voluntarily to avoid foreclosure damage.
Key Aspects
- Surplus Funds: After a foreclosure auction,
- if the property sells for more than the outstanding debt and expenses,
- the lender must return the remaining equity to the homeowner.
- Costs That Reduce Equity: The process often eats into equity through expenses like attorney fees, trustee fees, missed payments, and administrative costs.
- Selling to Retain: If a borrower has equity, they may be able to sell the home, pay off the loan, and keep the remaining funds, which is often a better alternative to foreclosure.
- Foreclosure Stripping: This involves fraudulent schemes where perpetrators take control of a home’s equity, often targeting vulnerable homeowners.
- Redemption Rights: In some cases, homeowners may have a statutory right of redemption, allowing them to reclaim their property within a certain period after the foreclosure sale by paying the full debt amount.
If you are facing foreclosure, exploring options with a housing counselor is highly recommended.