Seller Alternatives to Foreclosure

First off, try to look at the situation without attaching your emotions. From a strictly business viewpoint, you can more successfully analyze which option might best suit your needs and desires and move toward resolving your financial difficulty. One very important thing to remember: Time is of the essence, so take quick action in order to allow yourself enough time to complete the chosen process. The options are as follows:

Do Nothing – If a homeowner does nothing, they most likely will lose their home at foreclosure auction. Loan applications generally ask if the applicant has ever been foreclosed upon. Credit reports also disclose this damaging information.

Talk to a Housing Counseling Agency – Obtain a useful list of Housing Urban Development (HUD)-approved housing counseling agencies at 1-800-569-4287 or visit http://www.hud.gov/offices/hsg/sfh/hcc/hccprof14.cfm

Converting your ARM to a Fixed Rate – Millions of adjustable rate mortgages that were initiated from 2000 and 2006 are adjusting at higher interest rates, causing increased mortgage payments. Many lenders will convert homeowner rates to a fixed schedule: thus, the principle and interest portion of your payment will be fixed for the life of your loan.

Refinance –You may be able to refinance your loan into a mortgage that has a lower fixed rate. You may also be able to extend the term. For example, if you have a 30 year schedule you may be able to extend it to a 40 year.

Reinstatement – If behind, you make a lump sum payment for the entire owed amount plus interest, attorney fees, late fees and taxes. You can request an updated statement of the total amount due to bring the loan current by contacting your lender.

Loan Modification – Utilizing the existing mortgage company to change the interest rate, add missed payments to the balance or extend the terms of the loan. This option can be successful for homeowners who are just recently back on financial track.

Forbearance – Lender may be able to arrange a repayment plan based on the homeowner’s financial situation. The lender may even be able to provide a temporary payment reduction or suspension of payments. Information will be required from the borrower to show that you are able to meet the new payment plan requirements. Both loan modifications and special forbearance agreements are legal contracts so be sure you can meet the revised obligation or you can put yourself in jeopardy of renewed mortgage default proceedings.

Deed in Lieu of Foreclosure – Give the property back to the bank instead of the bank foreclosing. Banks generally require the home be well maintained, all mortgage payments and taxes must be current. Most loan applications ask if this has ever happened.

Bankruptcy – This option can liquidate debt and/or allow more time. Bankruptcy law changes of 2005 now require more stringent filing rules. Debtors must qualify by meeting an “income means test” and complete pre and post petition trustee-approved credit and financial counseling courses. Certain debts such as student loans and some taxes cannot be liquidated.

Conventional sale – Homeowner may sell the home without lender approval for a conventional home sale. If the property has equity (money left over after all loans and monetary encumbrances are paid), the homeowner will get cash from the sale.

Short Sale - Also known as a pre-foreclosure sale, can be negotiated with your lender by your real estate professional if what is owed on your home is more than the property’s value. The home owner will not receive any monies at closing, but will be able to sell and possibly prevent severe damage to their credit.