Q: Let’s say someone buys a home with a 30-year loan, and after 25 years has to let the house go into foreclosure because the homeowner loses his job and can’t make payments.

When the lender takes the home away from the buyer, and sells it to recover what is left on the loan, does the buyer get to keep any extra equity from the home appreciation?

In other words, if the house is worth $100,000 but the remaining loan balance is only $20,000, if the lender forecloses and takes the property, and sells it, would the seller or the lender get the extra equity? I imagine that whatever is left over that is given to the buyer would be after sales commissions and other expenses are paid.

Is this how it works?

A: Yes, if there’s any cash left in the property, the former owner of the home would get it.

But it’s a game that homeowners aren’t likely to win. The foreclosure process can be quite expensive. Lenders impose loads of fees onto the loan balance and then include all attorneys’ fees and court costs, along with paperwork fees, late fees, and any other fee you can imagine. All these fees add up quickly and can quickly eat through any equity. After all those costs and fees are subtracted, if there’s any cash left from the equity, the homeowner would get it.

Obviously, if you have that much equity, it would make much more sense to quickly try to sell the home yourself and preserve as much equity as possible. Generally, the costs of selling a home with a substantial amount of equity even at a distressed price would likely be less than all of the costs incurred by the bank in foreclosing on the home.

If the homeowner was over 62, he or she could get a reverse mortgage to tap into that equity, pay off the remaining mortgage, and stay in the home. But you’d have to determine what the issues are that prevents a homeowner from paying a loan that has a $20,000 balance. Usually each payment made during the last five years of the loan is mostly applied towards the principal owed on the home and little goes towards interest.

If there are any family members that can assist this homeowner in paying of the balance that’s left on the mortgage, that could save the home and thousands of dollars in foreclosure fees.

Please let me know what happens.