5 Options to Foreclosure

Whether you are months behind in your mortgage, or about to miss your first payment, it is critical that you inform yourself about the facts.  Industry research has revealed 5 options home sellers have when facing a foreclosure.  Each has a very different and significant impact on the outcome of this critical situation.  If handled quickly and correctly, the financial disaster of foreclosure can be avoided and you could even have your loan completely forgiven, saving your credit and thousands of dollars.

1. Do Nothing:

If you ignore the lender and do nothing, you will be foreclosed upon. In Texas, it only takes two months to foreclose, and there is no redemption period. Once you are foreclosed on, you will have to move out and there is no way to get the house back. The lender may sue you for the shortfall. When they are successful a deficiency judgment will follow you around until you die or file bankruptcy.

This is not a good option as you will be sued and your credit will be destroyed.

2. Work out a payment plan:

Many lenders offer a Repayment, Workout or Forbearance Plan. These agreements require the borrower to continue making regular payments on a scheduled basis over a period of several months (typically 18 months). Payments under a Repayment or Forbearance Plan include the regular monthly payment amount plus a portion of the delinquent amount to bring the account current by the conclusion of the Repayment or Forbearance Plan.

This option works well if you had a temporary hardship and will be able to make your regular payment plus an additional payment as required in order to catch up on what you owe.

3. Deed-in-Lieu of Foreclosure:

A Deed-in-Lieu of Foreclosure is the voluntary transfer of the property back to the lender in place of foreclosure. Requirements vary by lender, but typically the property must have been listed for sale at the fair market value for at least (90) days without an acceptable sale transaction to be eligible.

This option works well if you have already had your home for sale the required amount of time, but in most cases you will still be responsible for any shortfall between what the lender is able to sell the house for and what you owe.

4. Sell your home to an investor:

There are many “investors” who purchase homes that are facing foreclosure. Some of them are honest, but all are looking to profit from your unfortunate circumstances. They promise to negotiate a greatly reduced loan payoff called a Short Sale (see next). The more successful they are in lowering the purchase price, the more money they make.  Most lenders are less willing to negotiate directly with these investors as they know they are just trying to profit from the negotiations. Because of this your lender may see this person as the enemy.  Many times the investor is unable to make enough profit and walks away. Sometimes the investor is doing something illegal and you end up losing more than if you would have just been foreclosed upon. Even if successful, you might be sued for the difference between the amount owed and price the investor paid. You must ALWAYS get in writing from your lender an agreement to forgive the debt. Lenders prefer negotiating with REALTORS® as they are not seeking a large profit from the purchase and only seek to facilitate the deal while helping everyone.

This option works if you have a lot of equity in your house and you are working with a reputable investor and the lender is  willing to negotiate directly with the investor and forgive you the debt.

5. Short Sale / Pre-Foreclosure Sale:

A program whereby the lender accepts less than the full payoff amount due in order to avoid foreclosure. Requirements for these programs vary by lender, but most lenders prefer to negotiate a reduced settlement rather than go through the extra time and expense of a foreclosure.  Any REALTOR® may tell you they can help, but your best chance of successfully negotiating a Short Sale or Pre-Foreclosure Sale is to work with a REALTOR® who has a proven track record negotiating with lenders to forgive your debt and allow you to walk away from your situation without a foreclosure on your credit and without messy lawsuits or judgments.  These select REALTORS® are Short Sale Specialists, and they aggressively market your house and solicit multiple offers. They then build a strong case with your bank explaining your situation and negotiating with them to accept less that what you owe to avoid foreclosure and forgive the debt.

This option works in most circumstances, regardless of how far behind you are or how much or little equity you have.

* Not all options are available to all homeowners.  Whether or not you qualify for any of the above referenced alternatives will depend upon an analysis performed in accordance with your lender’s guidelines and procedures.  You will likely be required to provide specific information regarding
the reason for your financial hardship, recent pay stubs, bank statements, and other supporting documentation the lender requirements.  You should note that while you are applying for any program, and while any analysis is being performed, collection and/or foreclosure activity will continue and information about your account may continue to be reported to the credit reporting agencies.  Late payments, missed payments, or other defaults on your account will be reflected on your credit report and may affect your credit rating.

• Credit Counseling
• Broker or Non-Broker Assisted Short Sales
• Deed-in-Lieu of Foreclosure
• Foreclosure Postponement
• Loan Affordability Programs
• Recommended Mortgage Bankers