How can my house get sold at foreclosure and I still owe money?

Foreclosure doesn’t eradicate all debts associated with the home, and some debts stick to the person (even if they leave) and some debts stick to the property and some do both. Even if a loan gets foreclosed on, and if the foreclosure doesn’t satisfy that loan you can still be on the hook for the remainder.

Clear title isn’t a requirement to transfer ownership or interest. Title in Real Estate is not a single document like say a car title that says the buyer’s name and the lender. Even then, if a car is repoed and sold and that sale doesn’t pay off the loan you will still be responsible for the remainder.

Real estate title is better described of as “The Chain of Title” and title insurance protects against “Clouds on Title”. It’s an idea / concept of which a Deed is just one piece. That’s because there are a huge number of real estate ownership types (joint tenancy, tenancy in common, tenancy in entirety, right of survivorship, remainderman etc.), and a huge number and type of liens that can be secured by the property (mechanics liens, muni fines, mortgages, taxes of all types). So an unpaid fine, mortgage, HOA dues is a cloud on title. That’s why they do the Title Search prior to issuing a Title Policy.

Clear title IS required if you’re buying a home with a loan or obtaining title insurance, but that is because the mortgage company requires title insurance, and title insurance requires no clouds on title to issue a lender and owner’s title policy.

If you buy a house with cash, like say at a foreclosure auction, the new owner will get title (control) of the property but in many cases there are still outstanding liens such as HOA dues, codes compliance fines, unpaid utilities, and yes other notes and mortgages that someone still have to pay. It’s EXTREMELY common for new auction buyers to get caught out and get in way over their head due to this, because it’s on the buyer to do that research.

I also wish folks facing foreclosure would reach out to Realtors! Even though the market is down from June / July peaks, in many cases it can still be sold before the foreclosure completes and in many cases can even put tens of thousands of dollars in the owner’s pocket, instead of the end results being what they are now facing.

Speed is also critical with this. Banks really, really pile on fees ($15k-$40k) over the course of the process so the earlier you work to mitigate it the better off you are. I had one client who waited too long and went from being able to put $12,000 in their own pocket if they moved quickly to “wanting to think about it” and eventually owing the bank an additional $30,000 which killed all hope of an easy exit