Know your foreclosure options. Period. Most people
who are faced with
foreclosure become paralyzed into inaction from not knowing any of
their options ... or, in the opposite extreme, from being
bombarded with too much information thrown at them by everyone
trying to "help" them out of their situation.
If you find yourself facing foreclosure, please do yourself a big
favor. Educate yourself through your own research so you can take
control of your situation and make the right decisions on how to best
You have many foreclosure options and alternatives that can stop or
prevent your foreclosure.
Evaluating Your Options
Below is a list of your foreclosure alternatives in the order
of what is generally considered best to worst.
Agreement - If your situation is caused by a temporary
reduction in income and you anticipate to get back on track in the near
future, a forbearance agreement is a good alternative to foreclosure.
Another situation where this would work is if you need to
stop the foreclosure temporarily so you can execute either a
market sale, short sale, or a refinance.
When a lender approves a
forbearance agreement, they usually create a repayment plan where they
take the delinquent amount, divide it into the amount of months they've
allowed for the forbearance period (usually 6-12 months), and add it on
top of your regular monthly payments. Obviously, if you were
struggling to make your payments before, temporarily higher payments
may prove too much to bear, so most people will actually borrow the
money from a relative, or a friend.
The biggest benefit of a
forbearance plan is to prevent foreclosure during a temporary financial
- This is one of the easiest foreclosure options if you are able to
obtain the money to pay your delinquent payments and
re-instate your loan. It will automatically stop your
foreclosure. Please check the laws in your state to see if
there is a certain window within the foreclosure process where your
lender has the right to refuse a re-instatement and require a full
repayment of the entire loan instead. In California, lenders
don't have to accept a re-instatement 5 days before the trustee sale.
Although in my experience, most lenders will take a
re-instatement even at the last minute. But just to be safe,
you shouldn't wait until the very last minute to re-instate your loan
to stop foreclosure because if things don't go smoothly, you will not
have time for any other remedies.
- If you
are already late on your payments, your credit has more than likely
taken a hit, and if a Notice of Default has already been recorded, your
credit has more than likely taken a dive. If this is the
refinancing with a traditional lending institution such as a bank as a
foreclosure option is basically impossible. However, if you
a substantial amount of equity, you may qualify for a hard money loan.
If you have at least 40% equity or higher (ex: If your
is worth $100,000 then you can get a loan up to 60% or
Click here to see more details on how to qualify for a
private hard money loan.
The benefit of a hard money loan is to be able to either
your existing loan amount or to borrow a 2nd mortgage or HELOC to cover
your delinquent payments and re-instate your loan. Both will stop the
foreclosure and allow you enough time to pursue other options like a
market sale, short sale, etc.
- Short Refi
- A short refi is a refinance where your lender allows you to obtain
another loan from a new lender to pay off your existing mortgage loan
for an amount lower than what you originally owed. Your
lender will accept the lower amount as payment in full.
is a good solution if you owe more than your property is currently
worth and if successful, you will end up with a lower morgage balance
and lower monthly payments. In some cases, your own lender
even short-refi your loan since they will still make money over the
long term from your interest payments.
Please check with a
qualified attorney and an experienced accountant with regards to
possible deficiency judgments or tax consequences of forgiven debt.
- If you want to start over with a blank slate, you have the ability to
do so by filing bankruptcy. There are many pros and cons with
regards to this as one of your foreclosure options, so consider it
is also a tool to stop the
foreclosure and buy more time. Some people file a Bankruptcy Chapter 13,
and continue to pursue a loan modification, or hard money loan, or a
sale, then have the BK dismissed once their loan mod is approved, or
their loan or sale is about to fund and close. This way,
avoided the foreclosure and saved their property, but will
unfortunately have a bankruptcy on their record.
- Market Sale -
Selling a property you can no longer afford may still be the
dignified foreclosure option. You can sell your property at
market value if there is equity left. Make sure you hire the
realtor you can find and spruce up your property for maximum sales
price. Be honest with your realtor with regards to your
foreclosure situation, but no one else needs to know. You
need unnecessary lowball offers if you can help it.
- Short Sale
- If your property is upside down and has no equity left, a
sale is one of your best foreclosure options. You should hire
realtor who is an expert at doing short sales to guide you with all the
required paperwork and negotiations with your lender. Your
will have to accept a lesser payoff amount of your loan as payment in
full. (ex: If you owe $100,000 and you're only able
your house at $65,000 - the lender takes a loss of $35,000 + closing
costs and fees as negotiated).
a short sale involves forgiveness of debt, you will have to check with
an experienced attorney and accountant with regards to a potential
deficiency judgment and tax consequences of the forgiven debt.
This can be negotiated with the help of a skillful attorney.
Laws differ from state to state. You can also get
information on state
foreclosure laws here
- Sell to an
- There are many investors who research foreclosure recordings and
contact homeowners to make a purchase offer. If you choose to
down this path, keep in mind that an investor has the ability to close
a transaction very quickly because they often have sufficient cash, but
their main goal is to profit from the transaction, so they will not be
making you the highest offer. It could be a win-win situation
you negotiate well and let them know you have other options.
is one of the foreclosure options that will work if you have equity
left in your property.
- Deed In Lieu
- If you have exhausted all your foreclosure options and just want to
walk away from your property, call your lender and ask if they will
accept the deed in lieu of foreclosure. This means you will
handing the keys back to your lender and agree to vacate the property
at a certain date and your debt is cancelled by the lender.
an attorney review the paperwork sent by the bank to make sure you are
totally released from the debt and that the lender will not be pursuing
a deficiency judgment against you if the value of the property is lower
than the loan amount. As always, forgiven debt may have tax
consequences so consult with an experienced accountant.
- This is one of your worst foreclosure options. If you have
urge to just pack up and leave at midnight, please reconsider.
much as that sounds tempting at times, it leaves too many strings
attached. The lender has the right to sell your property at
auction immediately, slap you with a deficiency judgment if the sales
proceeds do not satisfy the loan, then report the loss to the IRS who
will in turn come after you to collect taxes on the forgiven debt.
It is always better to try to work things out with your
salvage as much as you can, and hopefully be able to truly start over
with a blank slate.
- Do Nothing
- This is the worst of all your foreclosure options.
Unfortunately, many people are paralyzed by fear, depression,
ignorance, negligence, or whatever other psychological and physical
obstacles that manifest when facing a traumatic event such as
foreclosure. I have seen people give up a lot of equity
they froze up and could not or would not take action to save their
property. If you do not have the will to do it for yourself,
it for your family if you have one.
sooner you take action, the more remedies you have and the more time
you have to pursue the best and most viable plan. Ignoring
foreclosure will not make it go away so muster up the courage and
strength to do the best you can for yourself and your family.
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