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A novation

A novation can get you closer to full market value than a cash offer, because the house sells on the open market. It also takes time, which is the catch.

Who holds the house and the loan in a novation
  • The house, today (you hold it): Yours
  • The house, when we sign (you hold it): Still yours while I pay for repairs and it's listed on the open market
  • The house, later: The final buyer's
  • The loan, today (you hold it): In your name
  • The loan, when we sign (you hold it): Still in your name
  • The loan, later: Paid off at the sale, and you get the price we agreed on

How it works

  1. You tell me about the house, the loan and where things stand.
  2. We sign an agreement with your price: the amount you'll get at closing. It also spells out what work I'll do and how long I have.
  3. I pay for the repairs or updates we agreed on. After the repairs, the house is listed and sold on the open market.
  4. When it sells, the money pays off your mortgage and the selling costs. You get the price we agreed on at closing, and I keep what's left after my costs.
  5. If the house doesn't sell in the time we agreed, the agreement says what happens next.

Who it fits

  • The house has some equity, but not enough room for a cash offer to work.
  • It needs updating to sell for full value, and you can't or don't want to pay for that.
  • There's enough time before any sale date for repairs and a listing. This usually doesn't fit if a sale date is close.

What stays in your name, and for how long

You stay the owner on title until the house sells. The loan stays in your name until then too. That can take months, depending on the repairs and the market.

The risks to you

  • Your mortgage payments and the foreclosure process don't pause while the house is being fixed and sold. We have to plan around both.
  • Generally, foreclosure can't legally start until you're at least 120 days behind, but once it starts, how long you have until the sale depends on your state. Check your state's guide.
  • If the house sells for less than expected, the agreement decides who takes the hit. Read that part closely.
  • You don't have to pay anyone to help you avoid foreclosure. In a novation, you shouldn't pay me anything, upfront or at closing.

What I need to see to make an offer

  • Your latest mortgage statement, or a rough payoff amount, and any other liens.
  • How far behind you are, and any foreclosure notice or sale date.
  • The price you'd want to walk away with.
  • The address, and a walk-through so I can price the work.

Sources

  1. CFPB: Avoid foreclosure (consumerfinance.gov)
  2. CFPB: How long will it take before I’ll face foreclosure if I can’t make my mortgage payments? What is the foreclosure timeline? (consumerfinance.gov)
  3. CFPB: If I can’t pay my mortgage loan, what are my options? (consumerfinance.gov)

Want me to look at your situation?

Tell me about the house and where things stand. I'll look at the ways I could buy it, and we can talk through how they compare with your other options. I never charge homeowners anything.

Ask about my house