If a loan modification or refinance isn't possible or feasible, your options come down to these:
Negotiate a short sale. If you owe substantially more on your home than it's worth, you may be able to get the lender to accept less than it is owed by negotiating a "short sale." You essentially sell the house for whatever you can get, and the lender agrees to accept the proceeds and not go after you for the deficit.
A short sale can further damage your credit scores, often showing up as a "settlement" that indicates you paid less than you owed. You may also face an IRS bill on the unpaid debt, which is generally considered income to you. A skilled negotiator may be able to avoid these consequences or at least minimize them, so you may want to consider getting an experienced and licensed short sale negotiator.
Offer a deed in lieu of foreclosure. If you can't sell the house for what you owe, but you're not deeply "upside down" on your mortgage, this may be an option: you propose handing over the deed to your home and your lender agrees to release you from your mortgage. This usually keeps you from having to pay any deficit that might be owed on the property, while the lender avoids further legal costs related to a foreclosure.
Lenders can't be forced to accept a deed, however. Typically, lenders require that the borrower make "a really good effort" to sell the home first, Ulaga said, and show that their delinquency was due to "unavoidable hardship" before they'll agree to a deed in lieu of foreclosure.
Allow the foreclosure to proceed. This is generally the worst choice. In some states and in some circumstances, the lender can even go after you in court for any deficit between what the house eventually sells for and what you owe. Even if the worst happens, though, the damage to your financial life needn't be permanent. If your situation improves, you may be able to get another mortgage, at a reasonable interest rate, within a few years. For more details, call us for information on how to rebuild your credit after financial disaster.
Roger W. Herrick
California Real Estate Broker
949-365-6585
California Real Estate Broker
949-365-6585
