Can a Mortgage Company Owe You Money From a Foreclosure?

The short answer: Yes, it can.

The long answer: Yes, it can – but it doesn’t happen very often.

To explain further, we will take a look at the foreclosure process and how a mortgage company recoups its money. When your home goes up for foreclosure, the mortgage company is seeking an amount equal to the amount owed on the defaulted loan.

For example, let us say that your home loan is worth $100,000, and you have paid approximately $25,000 so far. The outstanding balance is $75,000. This is the amount that a mortgage company is seeking to recover through the foreclosure process.

Let’s say the mortgage company puts your home up for auction. Legally, the mortgage company is only allowed to earn as much money as it takes to cover the full amount of the loan, minus any previous payments you have made and in addition to taxes, legal fees, etc. Therefore, let’s say that the total amount (including legal fees) is $80,000.

The auction starts at $80,000, but a bidding war breaks out and suddenly the house is selling for $100,000. The mortgage company is not allowed to pocket the difference between the two (the stated cost to the bank and the final sale amount) so you receive the difference – in this case, about $20,000.

Unfortunately, this is not a common occurrence. The reason is simple: If homeowners can sell their home for what it is worth, or close to the amount owed, they will usually do so, or even arrange a short sale. So, if your home is being foreclosed on, chances are the bank will not be able to sell it for more than what is owed.

The other side of the spectrum is also true. In some states, if your home does not sell for the entire amount of the loan, you can actually be ordered to pay the difference. So, if your home sells for $70,000, you still owe the mortgage company $10,000.