Tips to avoid foreclosure
Mortgage News from Quicken Loans
The last thing any homeowner wants to go through is a foreclosure. It's the worst possible scenario for someone having trouble making payments on their home's mortgage and should be avoided at all costs.
When a house is foreclosed on, the homeowner loses their home and any equity they may have built, plus their credit can be destroyed for several years. The local community loses too - in the form of tax revenue the home produced, and it suffers from the blight of abandoned homes.
Homeowners who find themselves in a situation where they may eventually be facing foreclosure need to act fast. There are a few options that, if done soon enough in the process, can save a person money and most importantly - their credit. Remember, once a foreclosure hits your credit, it can take up to seven years to bounce back.
Get in touch with your mortgage servicer
Don't wait. The moment you realize you may have troubles paying your mortgage, contact your mortgage company. The sooner the better. The longer you wait, the worse your problems probably will be and the fewer the options you will have. Here's the truth: your lender does not want to foreclose on your house! It makes much better financial sense for them to work out a payment plan or even refinance you into a mortgage that is more affordable and better for your situation. When refinancing or payment plans are not an option, three strategies that are still more beneficial to both the consumer and the mortgage company are: a short sale, an upside-down sale, and a deed in lieu of foreclosure. However, once you are 90 days late with a payment, all these options will be off the table and foreclosure proceedings will have begun.
Short Sale
Perhaps the most common strategy to avoid foreclosure, the short sale is when a lender agrees to accept less than the seller owes on the mortgage and the seller doesn't have to bring money to closing to cover the difference. The difference between sale price and amount owed is recorded as income to the seller from the mortgage company and therefore the seller must pay income tax on it. Most lenders don't view a short sale on your credit report any more favorably than a foreclosure, however.
Upside-down Sale
Again, if the seller owes more than the house is worth, the difference has to be made up at closing to legally transfer the title and deed of the property. When a short sale is not an option, a person can do an upside-down sale. This is simply when the seller brings the difference in amount owed vs. amount of sale to the closing. In some cases, the seller can work out a payment plan with the mortgage company if coming up with the cash at closing is impossible. Again, communication between the seller and the mortgage company is extremely important to keep all parties on the same page.
Deed in lieu of foreclosure
A deed in lieu of foreclosure is exactly what it sounds like. When the homeowner can't sell their home, they give the deed of the house back to the mortgage company in order to avoid foreclosure. Not a preferred option for either party, but it allows the homeowner to avoid foreclosure. Again however, the lender doesn't distinguish between a deed in lieu and an actual foreclosure when assessing your credit.
The main thing a person having mortgage problem needs to consider is keeping, at all costs, as solid of credit as possible. Having poor credit will create more problems and financial hardships down the road. Working with mortgage companies to avoid foreclosure is the best bet for anyone. Remember, communication is key. Don't procrastinate if you are having trouble making a home payment. Get in touch with your mortgage lender as soon as possible!
This article is reprinted by permission from Quicken Loans © 2007 Quicken Loans Inc. All rights reserved.
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