What happens to the homeowner's equity in a foreclosure?

In Texas, when a homeowner is facing foreclosure, the homeowner’s equity in the home is taken into account. Equity is the difference between the home’s market value and the outstanding mortgage balance. When a home is foreclosed on, the homeowner’s equity is used to cover some of the costs associated with foreclosure such as attorney’s fees, court costs, and other expenses. After those costs are taken out, the remaining equity is returned to the homeowner. However, if the equity in the home is not enough to cover these costs, the homeowner will still be responsible for paying them. Homeowners can also be responsible for the difference between what the home sold for at the foreclosure auction and the outstanding mortgage balance. This difference is called a deficiency balance. The homeowner is responsible for paying off this balance through a lump sum payment or in monthly installments. If the homeowner does not pay the deficiency balance, their credit score may be affected. In some cases, a homeowner may be able to negotiate with the lender to keep the house through what is called a deed-in-lieu of foreclosure. This allows the homeowner to transfer the deed back to the lender, who will then cancel the foreclosure and the outstanding debt. This can help the homeowner avoid foreclosure and preserve some of their equity.

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What happens to the homeowner's equity in a foreclosure?

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