You receive a foreclosure notice in the mail after failing to make a number of mortgage payments. You know that the bank is eventually going to take your home back and then sell it at auction.
You're looking for another way out, and you decide that you want to put the house on the market. If you sell it, doesn't that mean this isn't your problem anymore?
It might. Selling is a viable option. You can do it during foreclosure but before the auction. If you sell the home, you can then use the money to pay off the mortgage, the penalties, the fees and any back payments that you still owe.
The key is to remember that you need to pay off your entire debt. If the bank is foreclosing on the house and you owe $200,000 but you only sell it for $150,000, you are still $50,000 short and you owe the lender that money. Your sale must cover your debt. Then the bank will accept it and move on.
The biggest problem is for people who are underwater, meaning they owe more than the house is actually worth. If the market has been trending up, you should be able to sell without a problem -- and possibly make money doing it. If it's been falling, though, you may not be able to sell because you'll never bring in enough to prevent the foreclosure by paying off the loan.
This is just one potential option when facing foreclosure. Make sure you carefully consider all of the ones you have and how they may impact your future.