Facing foreclosure? You may have options!

Are you facing foreclosure? This can be a tough situation for many owners but you may have options. Let’s talk about a few. Before we begin, we are not attorneys and it’s always a good idea to consult with an attorney to understand what is best for you.

Option 1: Deed in Lieu of Foreclosure
This is where the homeowner transfers title (ownership) to the Lender and the lender cancels any foreclosure proceedings. You or your attorney may also be able to negotiate a waiver of their right to collect any money that you owe on the property. Consult an attorney to have them negotiate on your behalf.

Option 2: Short Sale
This is where the homeowner agrees to sell the house for less than what is owed and must be approved by the lender; meaning the lender must agree to sell it for less than the mortgage debt and cancel the foreclosure proceedings. Some common conditions of short sale include…

A:Require a note be signed by the homeowner for the difference between the sale price and what is owed which leaves them on the hook for this money.

B: Reservation that would allow the lender to get a judgement on the difference between the sale price and what’s owed which also leaves you on the hook for that money.

Also keep in mind if there are 2nd or 3rd liens on the property. In both of these options, ALL lien holders (even subordinate liens) must approve of such action. Sometimes the first lien holder may offer incentives to them to agree to it.

Let’s talk about the personal consequences of these actions.

  1. Your will see a drop in your credit score and it may impact your ability to secure future loans for a specified period of time. Sometimes think taking one of these options instead of going through foreclosure will help reduce the hit your credit takes but that must be verified.
  2. You may still get a deficiency judgement; a judgement for the difference between what is owed and what it sells for which means that you’ll have to pay that sooner or later but there are ways to negotiate that and/or file for bankruptcy. Consult your attorney.
  3. If your lender writes off the deficiency as a loss, you won’t likely have a judgement against you but you would likely owe income tax based on that write off.

If you’re in a situation like this and need further guidance, feel free to reach out to us. We can pull current market data and let you know what homes in your area are selling for to help you choose the best route for you.