To Avoid a Potentially Devastating Mistake, It's Vitally Important That You Understand Your Foreclosure Avoidance Options There are actually several options available to those facing foreclosure, so it's important that you do your homework up front to avoid a potentially devastating and irreversible mistake.
Pay the Loan Off: Of course, a homeowner can always stop a foreclosure by paying off the mortgage (including missed payments, back interest, and fees) prior to the foreclosure -- this is called the "equitable right of redemption.
" Additionally, some states allow for a "statutory redemption period" during which the homeowner may repurchase the property even AFTER the foreclosure sale by paying the prior mortgage balance, including all fees associated with the foreclosure.
Loan Modification: It is always suggested that a homeowner contact their lender at the first indication of financial problems that will lead to missed payments.
If approved, a loan modification might include an interest rate reduction, payment reduction, principal balance reduction, lengthening of the loan term, or a combination thereof.
Deed-In-Lieu-Of-Foreclosure: A deed in lieu of foreclosure occurs when a lender agrees to accept the deed and forgo the official foreclosure process -- the homeowner hands over the keys and walks away.
While it sounds good in principal, there are many reasons why lenders are unlikely to accept a deed in lieu.
Short Sale: A Short Sale situation occurs when the current market value of a property is less than the current loan payoff amount.
Since a property can only be sold if the lender(s) releases its lien(s) on the property, in a short sale situation the lender agrees to release their lien even though the sale price will come up "short" of the amount needed to pay off the loan.
While it might seem counter-intuitive that a lender would willingly accept less than it's owed, the reality is that the foreclosure process is expensive and time-consuming for lenders, and they often find they'll come out ahead of the game by approving a short sale and avoiding the foreclosure process.
While successful short sales are quite common in today's market environment, the truth is that those short sales being approved by lenders are typically the ones being handled by specialized short sale experts who know exactly how to: assemble and transmit the required seller documentation, market the property and secure a buyer at a price acceptable to the lender, prepare and submit the buyer contracts, and who maintain contact with and negotiate with the lender's representatives throughout a many months long process.
Sellers must be VERY wary of agents who have paid money for a "designation" they received by attending a two-day seminar on short sales.
Sellers should only trust agent with extensive legal, transactional, and short sale specific training and experience.