Syracuse Business Daily

What happens to built up equity when someone defaults on a mortgage?

If a homeowner has a substantial amount of equity built up in a home, what happens to the equity if the homeowner defaults on their mortgage? In other words, what happens to that extra money if the bank sells the home for more than they have loaned out on it?

Public Comments

1. In most cases, the excess amount over the mortgage owed is refunded back to the owner.
2. If your home is foreclosed, you lose everything. If you have positive equity, sell the home rather than default.
3. equity is the percentage of ownership you have. If you have 100k in equity that would imply that you have paid down 100k on the mortgages. So . . . . to default on the remaining mortgage balance means the bank can foreclose, which is to say they get the title and they own it. I have NO idea what the other answerer is suggesting.
4. The bank keeps all of the equity if they foreclose. That's a cash cow for the banks but it usually doesn't happened like that. Usually, it's a negative equity and the house is tore up. If a person has that much positive equity in the house, more than likely they can sell it for pay-off and the person buying would be getting a great deal with instant equity.
5. It is gone. The bank keeps it all. That is why no sane person with equity would allow a forelcosure. That person will sell home and salvage something.
6. Just about everyone is wrong here. lets say you owe $100,000 on your home and your home is worth $200,000 and it is foreclosed on, it will go to the public auction and opening bid would be $100,000 plus trustee's fees, back payments, late fees and any other costs incurred by the bank. If it is bid up over opening bid then then the difference goes to the home owner. If no one bids then the bank takes back the property. If the bank sell the property for more than opening bid and holding costs then that money goes to the homeowner. Bank are not allowed to make a profit on foreclosed propertys, they can only break even.