The overriding factor for not letting your home foreclosure is a minimization of loss and liability. Foreclosure will do nothing more than increase the harm done and increase your short, medium and long -term loss, liability and hardship.Strategy 1: Short sale
It’s very common in today’s depressed real estate market for home seller to receive offers that are less than the amount owed to the lender. A short sale simply your home for less the sum total of your mortgage balance(s). Of course your lender must agree to a short sale and many more of them are realizing that is in their best interest to do so.
Here is an example of a short sale scenario: Suppose you owe $250,000 on your mortgage. You list your home for sale and the best offer you get is $230,000. After closing costs and real estate agent commission, your lenders “net” will be approximately $200,000 which is a short fall of $50,000.
If the lender chooses to accept this offer, there a few different ways they can address the shortage.
- The first possibility is to require you to sign a “promissory note “ to pay the deficiency back. This would be required prior to closing your home.
- The second id to pursue a judgment against you for the deficiency amount, post sale (whether or not they pursue this course is always dependent on extraneous factors, such as state laws, whether or not you have a mortgage or Deed of Trust, a recourse or non-recourse loan; all described in other chapters).
- The third is that they may report this deficiency to the Internal Revenue Service in the form of a 1099, as earned income.
Strategy 2: Sale – With Equity
The only issue here is determining whether or not you actually have equity in your home. As stated in other parts of this book, this determination is not necessarily an easy task in today’s fluid real estate environment.
Nonetheless, if you need to sell your home because you cannot afford it, you will likely put it on the market and list it through a real estate company. Based on the feedback you receive from the market (other Realtor and buyer interest ) you will adjust your asking price accordingly.
Dropping you asking price under what your loan balance is, places you into short sale territory. The bottom line is that the market determines your price and if that price provides you a profit, great!
To reiterate, if you think there is even a chance that you will be in a short equity position, MAKE sure you hire a qualified Realtor.
Strategy 3 : Deed In Lieu Of Foreclosure
The deed in lieu of foreclosure is an instrument that conveys all interest I the property from the borrower to the lender (mortgage) in order to satisfy a loan in default and avoid a foreclosure. You voluntarily transfer your property title to the lender in exchange for cancellation of the remainder of your debt.
Your lender will consider Deed in Lieu under the following conditions:
- Foreclosure is forthcoming and unavoidable
- The borrower is unable to sell the property
- There should be no other liens or attachments to the property
- The property needs to be left in “broom clean” condition
- You have exhausted other options including trying to sell
- You are still living in the house
This seems simple enough, but it is a complicated process that takes the expertise of experienced professionals. Please consult to a Certified Distressed Property Expert (CDPE®) for foreclosure prevention options that are best serve your specific situation.
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