If You Are Facing Foreclosure, Consider ALL of Your Options!

If you or any one you know is facing foreclosure, make it a point to consider all of your options:

1) Of course, letting the bank foreclose on your property is an option in and of itself, but the impact of losing your home to foreclosure is devastating. The foreclosure action remains on your credit report for 10 years, and today credit reports are used for a variety of reasons from obtaining a credit card, and requesting an automobile loan, to applying for employment. The other truly problematic result of foreclosure is that the bank may still come after you for  the difference between the balance owed and the amount the property sold for at auction with an action called a deficiency judgement. For example: the amount owed on the mortgage is $350,000 and the property sells at auction for $180,000. The balance of $170,000 may still be pursued by the bank, along with various bank fees. Foreclosure can be a triple whammy: you've lost your home, had your credit ruined, and may still face the possibility of owing the bank a considerable sum of money!

2) Refinancing: If you have at least 20 percent equity in your home, you may be able to refinance to a lower interest rate. Whether this option is viable depends on factors like your current credit score, income, and debt-to-income ratios.

3) Loan Modification: This option is the most familiar to the general public since the onset of the foreclosure crisis. The bank modifies your current mortgage to reflect current market situations like home values and interest rates. The bank may allow a reduction of interest as well as principal. Be aware, however, that loan modifications are extremely difficult to obtain and few homeowners are granted them. The banks have the statistics on their side-most homeowners granted a loan modification default again within twelve months.

4) Forebearance: If a homeowner faces a temporary setback, like illness, which has hindered their ability to pay their mortgage, the bank may consider a forebearance. The key word here is temporary. If the homeowner can show that they had a problem but will soon be back on track, the bank will allow them a period of time where no payments or interest only payments may be allowed. Any missed payments are then placed at the back end of the loan along with miscellaneous fees.

5) Short Sale: The property is being sold for less than what is owed on the property. From all outward appearances, this looks like a regular sale. The seller and buyer enter into a contract of sale, the buyer obtains the financing, and a closing occurs. The difference here is that the lending institution(s) for the seller must approve the sale. The advantage to the seller is that they have SOME control over the process, and walk away from the home with no further mortgage obligations or tax consequences. Often, the bank will even offer a considerable sum to help the homeowner relocate.

6) Deed in Lieu of Foreclosure: This is an option only if there is one mortgage on the property. The homeowner simply gives the bank the keys and the deed to the property and walks away. For the bank, this is not a preferred option because they have now taken on the ownership (and the responsibility) for the home- its maintenance, insurance, and taxes. Whatever people believe, banks do not want to own residential real estate!