If you are in the prospect of your lender repossessing your home through foreclosure, then you are not alone. Lenders have bought back more than 1 million homes in the US since 2008, and foreclosures are expected to pick up again in 2012. As homeowners begin to cope with the loss of their homes, many wonder which ones. They are your options when it comes to foreclosure proceedings. We can greatly simplify the options so you can see the big picture.
Before we get there, let’s get on the same page when defining the term “foreclosure.” The basic definition is the default by the owner / borrower of the payment obligation to the lender. Failure to meet the terms of the loan allows the lender to declare that the terms of the contract have been violated and provides a way for the lender to purchase the home, which served as collateral for the money originally loaned to purchase the home. In simpler terms, the lender will attempt to make up your loan default loss by taking over the home or property. Foreclosure itself is the process by which lenders can purchase a property from the original owner. The foreclosure sale is the completion of the foreclosure process and when the property has officially passed from the original owner to the new owner (lender).
Now that we’ve defined the term, we can move on to the options for homeowners facing foreclosure. The options come down to whether: 1) you want to sell your home or 2) you want to keep your home.
- You want to sell your house
Selling your home is a viable option when your only other available solution is foreclosure. If you are in the enviable position of having equity in your home, this information is NOT for you Watson Buys. These are options for homeowners who are not only in dire financial straits, but are also mired in the value of their home.
Short sale
In the case of a short sale, the lender and the owner agree to sell the home at a price lower than the residual value of the loan. This basically means that the bank will accept a withdrawal that is less than the amount owed. The seller / owner must prepare a financial package to present to the short sale bank. Each bank has its own set of guidelines, but the basic process is similar from bank to bank. A basic outline of the package can be found in the resources section of this article.
Deed-in-lieu of foreclosure
There are other ways to avoid foreclosure altogether by signing the deed to your property with the lender. In this case, you are basically giving up ownership of your home. In addition to losing your property’s equity (which is certainly not an easy financial decision), the advantage of this option is that you can potentially turn away from a negative equity investment – a property that is “upside down” on the market. Value compared to the loan balance. Or you simply owe more than your property is worth.
There are requirements for a deed in lieu of a foreclosure agreement with your bank. For more information on the requirements, see the resources section of this article. Depending on your loan type, there may be up to $ 3,000 available for your moving expenses when you get a deed in lieu of foreclosure. You may also be eligible for up to $ 6,000 to meet obligations such as your home loan or line of credit.
A replacement deed effectively cancels your home loan and, in some cases, means that you will not have to pay your loan balance (also known as a deficiency). The important point in bold is an agreement that must be made directly with your bank.
Both a short sale and a deed in lieu of foreclosure will negatively affect your creditworthiness. However, the degree of this may be less than if a foreclosure judgment is included on your credit report. According to Fair Isaac, the organization that determines a consumer’s FICO score (Fair Isaac Corporation), while creditworthiness is individualized, overall the negative change will decrease by an average of 85 to 160 points. Depending on the financial situation, it can go down to 300 points, so the owners must