Sell The Property
In many instances, you may be unable to qualify for any of the above programs that would allow you to stay in your home. If this is the case, you must sell the property in order to resolve your financial difficulties. You must understand that sometimes it’s simply in your best interest to sell the property and get out from under the defaulted loan. Here are the options to sell your property:
1. Conventional Sale – If you have sufficient equity in your property, you may be able to market and sell your home through a conventional sale. The conventional sale usually takes a minimum of 30-45 days to complete after a contract to purchase is signed, and is usually still contingent upon the new buyer obtaining new financing. If for some reason the new buyer is unable to perform, it may put you in a tough position given that there is a foreclosure looming. You may be too far along in the foreclosure process and not have enough time to resell the property in order to pay off your defaulted loan and stop the foreclosure.
2. Short Sale – When the proceeds from the sale of a property will not be sufficient to pay off the defaulted loan in full, the lender may agree to accept a “short sale.” This means the lender will agree to release the lien on the property even though the loan has not been fully paid. In almost all cases, we negotiate a settlement so that the lender forgives the balance due on the 1st loan and they will not be able to come after you for the difference. IMPORTANT: Whenever $600 or more is forgiven as a result of settling a debt for less than the balance owed, the creditor may be required to report the amount forgiven to the IRS on a 1099C form, a copy of which sould be mailed to you by the creditor. If you are uncertain of the legal or tax consequences, please consult your legal or tax advisor.
3. Deed-in-Lieu – When a lender foreclosing on a property agrees to allow you to deed the property back to the lender before the foreclosure is complete, it is called a “deed in lieu of foreclosure.” This can be advantageous to lenders because they get the property back sooner from cooperative homeowners which mitigates their losses. It doesn’t really help the homeowner however, because the credit bureaus rate the deed-in-lieu of foreclosure, the same as foreclosure on the credit report. Also, this option is usually not available if there is a 2nd mortgage on the property, because the 2nd mortgage would still be on the title after the deed-in-lieu-of-foreclosure is completed. The only way for the 1st mortgage holder to clear the 2nd mortgage from the title is to proceed with the foreclosure.
4. Foreclosure /Do Nothing – Many homeowners take no steps to stop a foreclosure or sell their property. This is because either they do not have any desire to do so or they are unaware of their options. Some homeowners simply do not care about the property or the foreclosure. A study by Freddie Mac in 2005 discovered that over 65% of the homeowners who lost their homes to foreclosure were unaware that they had any options to save or to sell their property. A foreclosure is also devastating to your credit – it will stay on your credit history for 7 years and will lower your FICO score approximately 250 points.
5. File Bankruptcy – If you file bankruptcy, the foreclosure is automatically and instantly stopped. This is called the “automatic stay.” Depending upon whether you file a Chapter 7 or a Chapter 13, this tactic can be used to give you additional time to close a transaction or even could allow you to retain your home while repaying the amount in default over a period of up to five years. Bankruptcy has the most devastating effect on your credit however, lower your FICO score 300 points or more, stays on your credit for up to 10 years, and you will have difficulty getting any loans during that time and you will pay higher interest rates. In 2005, Congress substantially amended the Bankruptcy Code to stem abusive bankruptcy filings. This has made it more difficult to file for bankruptcy. Because of this and the resulting severe credit damage, filing a bankruptcy should usually be your last option to stop a foreclosure.