Loan Modification
While only certain homeowners will be able to take advantage of this alternative, it is your best option because it keeps you in your home and preserves your credit rating.
Your lender may be willing to modify the terms of the loan, whether it's reducing the principal, lowering the interest rate or other creative strategies to make the loan affordable for you. As part of the stimulus package, the U.S. government has programs to provide incentives for banks that use this strategy as an alternative to foreclosure.
Short Sales
This is the fastest-growing foreclosure alternative. Many banks will allow a short sale, in which the home sells for less than the amount of the loan. This is attractive for lenders because they lose less money than in a foreclosure. Also, short sales generally take less time than foreclosures, so the banks don't have to carry the properties on their books as liabilities. And it's attractive for homeowners because the impact on their credit is far less than in a foreclosure. It stays on their credit reports for only two years, as opposed to seven years for a foreclosure, and often isn't a barrier to purchasing another home. Short sales are paperwork-intensive, and there are many, many details involved. If you're considering this option, it's critical to work with a trained real estate agent who knows all the steps required to successfully complete a short sale.
RE/MAX leads the real estate industry in agents who've completed the Certified Distressed Property Expert (CDPE) course or other specialized training. We understand the intricacies of these transactions, and we can advise and counsel you every step of the way.
Keep in mind that no matter which option you choose, there may be tax and other financial consequences. You should consult with a tax advisor or legal expert.
Foreclosure (Cash for Keys)
One of the biggest problems in foreclosures is that homeowners sometimes physically damage the property, or even sell some of the fixtures, before leaving. Needless to say, this is not a good idea. It may expose the homeowners to financial and legal liability. It also makes the properties much more difficult to sell.
To prevent this, some lenders offer a program called "Cash for Keys." The homeowners receive a check for vacating the property within a certain time period and leaving it in good condition. If you have no alternative other than foreclosure, you should ask the bank about this option.
Tips From HUD - The U.S. Department of Housing and Urban Development has 10 tips for avoiding foreclosure:
- Don't ignore the problem.
- Contact your lender as soon as you realize you have a problem.
- Open and respond to all mail from your lender.
- Know your mortgage rights.
- Understand foreclosure prevention options.
- Contact a HUD-approved housing counselor.
- Prioritize your spending.
- Use your assets.
- Avoid foreclosure prevention companies.
- Don't lose your house to foreclosure recovery scams.
Contact Credability (formerly Consumer Credit Counseling Service) for guidance.
Read more from HUD about foreclosure.
Find additional resources to help you avoid foreclosure.
