Re: After foreclosure sale and before ratification

The mortgagor (borrower) cannot sell the property at any time after the foreclosure has been filed without the permission of the trustee. If a sale does occur before the foreclosure auction without the trustee's permission, the borrower will still have to pay the costs of auction and may be liable for half of the trustee's commissions (around 2.5% of the sale price). If the property is sold after the auction but before ratification, the sale by the borrower is null and void. The borrower would have to return the money to the post-auction buyer and may be liable for damages suffered by that buyer. Those damages would be at least the cost of closing that the buyer paid and perhaps moving expenses and rent which the buyer must pay while looking for a new home. They could even include attorney's fees incurred by the buyer to litigate the title issues. In fact, the borrower may also end up paying the trustee's attorney's fees associated with the title dispute because the Court can pay those fees out of the common fund, diminishing the proceeds that will be returned to the borrower or even creating a deficiency for which the borrower would be personally liable.

In short, if a mortgagor wants to sell the property without incurring the costs of foreclosure, the mortgagor should conclude the sale before the foreclosure action is filed with the Court. At the very least, the mortgagor should identify the buyer before the auction is held and notify the lender that a buyer has been identified to see if the lender is willing to cancel the auction and allow the private sale.