What happens in foreclosure If you owe more than your house is worth?

If you become late on your mortgage loans, the lender may file a notice of default that starts the clock towards the day of the foreclosure or sherriff's sale. Each state has a slightly different foreclosure process, so you have to check with your state.

However, when the house is finally sold a trustee or sherriff's sale, if there are no bidders, then the lender who foreclosed gets the house back. In some states you have the right of redemption but this is seldom exercised because there was no equity anyway, and therefore it wouldn't pay for you to redeem your house.

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Now, there is a financial loss that the lender has incurred. They made you the loan. You owe them the delinquent payments and late fees and a lot of other fees. And foreclosure fees, attorney's fees and a lot of fees like inspection, appraisal and more that are piled on.

If the lender sells your house, they will do so only after fixing it up to get it up to code, if needed, putting it on the market and finally settling. This could take months. Lenders are notoriously poor at selling houses called REOs, or Real Estate Owned, the term for properties they own after foreclosure.

They will want someone to pay for these costs and expenses. In some states they can go after you for them. In some states, they can't. And in other states, they only can if you refinanced but can't if the loan was a "purchase money" mortgage. You need to check into this.