Why foreclosure? Why not sell? Especially in this market?

[Kelly Davis]

We recently attended our first courthouse foreclosure auction in Gwinnett County.  We saw 4 houses come up for auction while we were there.  All 4 houses sold for ridiculous prices.  So we're sitting there thinking, why are the homeowners letting their house even get into foreclosure?  Why would they not just list it for sale and pay off their debt?  Any insight here?

[Jason Hirko]

Quote from @Kelly Davis:

@Chad U. I didn't realize that. So if the owner owes $150k and the property sells for $300k then the owner gets to keep the extra ~$150k after paying the bank the original $150k, minus any fees, etc.? The net result then to the owner is the same as selling on MLS except now they have a foreclosure on their credit. Is this correct?

The real risk with that, aside from like you said the foreclosure on their credit, is in states like Texas, the property may not get bid up to what the lender is owed. In that scenario one of two things happens: either the lender then sues you personally (as you signed the personal guaranty) for the difference, or the lender bids on the property themselves for what they're owed, and then they are free to do whatever they want with the property after auction. So if the lender buys it back at the foreclosure auction in your example above for $150k because no one bids on it, then they turn around and sell it on the MLS for $300k, that profit belongs to the lender.