There are lots of ways to stop home foreclosure, but once you’ve received a Notice of Default, your choices become more limited. It is obviously better to take preventive measures, as it’s much harder to stop home foreclosure than to avoid it. But if you’ve failed to work out a mutually beneficial payment schedule with your lender or you’re simply unable to pay off the needed amount of money, the procedure of foreclosure will be inevitably started. In this case you still have some options to mitigate your losses.
Sell your home before the process is over.
A good option is to sell your property before the bank takes it away. You will have to persuade your lender to put off the foreclosure process while you’ll be trying to sell your house in a tough real estate market. If you manage to succeed with this task you’ll get the money needed to pay off your debt and will be able to stop home foreclosure. Also, it will save your positive credit score.
Consider a Short Sale.
A short sale takes place when your lender allows you to sell your house at a lower price than the amount of money needed to cover the whole debt. Getting permission for a short sale and a discount on your mortgage often takes months of exhausting and frustrating negotiations with the bank. Here you might want to turn to the help of experienced professionals who will carry out negotiations on your behalf and help you stop home foreclosure. Why should the bank help you? Generally, lenders lose a lot more money if the property is sold through a foreclosure, and they know it perfectly well. So, it’s easier and less trouble to short sale a house than to wait until it goes to auction and pay endless fees. A short sale is a good option for those people who are ready to lose their home but want to avoid negative hits on their credit history. Actually, a short sale will also affect your credit rating but not as badly as a foreclosure.
Deeding the property back to lender
You can give your house back to the lender to stop foreclosure and they will forgive the balance that you owe. So, you as the homeowner are deprived of any right to property while the bank forgives the whole loan. It’s an effective way to stop home foreclosure, besides, in some cases homeowners are allowed to stay in their houses until they find a new place to live. However, this is not favorable in credit rating terms, as it affects your credit in the same negative way as a foreclosure.
On Monday April 26th Justin Lee, the CEO & Founder of SaveMeFromForeclosure.com hosting a free, live teleseminar on how to stop foreclosure fast. Inside this audio, he shared the 7 biggest mistakes he sees homeowners making, and what they can do to avoid them. This audio is free, and can be listened to right here:
The short sale, used primarily to stop foreclosure, is becoming a very popular field in real estate especially when interest rates are climbing. Homeowners faced with the prospect of losing their home are turning more and more to this option. Short sales are also becoming more and more popular for real estate investors when buying a foreclosure just because of the huge discounts they offer.  Â
Short sales are negotiated by the seller directly with the lender, and they require the seller to provide information as to why they cannot find a way to make normal payments. Foreclosures are expected to increase nationally as many adjustable rate mortgages written during 2004 and 2005 reach their first-reset marks. Short sales are complex and likely to become more complex as lender deal with more and more of then in the coming months and years. Many homeowners who took advantage of the inflated real estate prices to dig deeply into their home’s equity are now feeling the pinch.Â
LendersÂ
Lenders know that repossessing the home will cost them tens of thousands of dollars to maintain, refurbish, market and sell, with no guarantees that it will recoup the same amount as from a short sale. Lenders want to see that the homeowner is not able to pay their bills and are in need of relief; short sales are a last resort option and are only necessary when faced with foreclosure or bankruptcy.  Lenders want to get rid of distressed properties as soon as possible, but they aren’t going to sell them for ridiculously low prices.  Sellers In a perfect situation sellers want to get as much for their homes as possible, and certainly don’t want to sell for less than market value, or sell for less than what they paid for it. This may quickly turn into a desperate situation however when unforeseen events transpire that create financial hardships. Job loss, long-term illness, or a dramatic rise in living expenses are just a few reasons homeowners suddenly find themselves with a cash flow problem. The fortunate seller who convinces their lender a short sale is the best way to solve this problem needs to be aware of one possible downside. Some lenders may claim whatever debt they’ve forgiven as a loss on their taxes and issue a 1099 form to the seller for the amount. Â
ForeclosuresÂ
Foreclosures are growing as expected and continue to increase nationally as many adjustable rate mortgages written during 2004 and 2005 reach their first reset marks. Short sales are expected to increase proportionally as a direct result. Foreclosure practices, including pre-foreclosure short sale workouts, may differ from lender to lender, state to state, and in some cases, from county to county.Â
Short sales have become fairly common practice in the real estate market these days and anyone who has completed one knows that you had better be prepared for rough riding trying to convince the lender you story is compelling enough for them to accept the lesser amount from the sale of the property. Armed with this information, you can decide whether short sales are an avenue worth exploring to avoid foreclosure.
Few people purposely wish to suffer through the pain and humiliation of losing a home through foreclosure. There are many alternatives to bankruptcy and stopping home foreclosure for owners unable to keep their mortgage payments current. One such option is known as a “short sale.” It means a lender is willing to accept less than the total amount owed on the loan. One key element involved in the short sale process is the hardship letter.
Most mortgage companies or lenders require the hardship letter pursuant to a short sale. The homeowner should not waste this valuable opportunity to appeal to the lender for another chance. It is also prudent not to waste time and engage in finger-pointing as it will only make your already tenuous situation worse, and lender may well deny your request for a short sale. In the hardship letter just present the facts clearly and above all else be honest. The hardship letter must be able to prove the situation that caused you to fall behind was temporary and you are now in a position to make your payments on time. The excuse for falling behind must be legitimate and provable. Situations such as job loss, prolonged personal illness, or a death in the family are all acceptable reasons to fall behind on your mortgage payments.Â
Who is responsible for writing the hardship letter to creditors?
A homeowner may write the hardship letter themselves, hire someone, or get help from a real estate investor if one is involved. The real estate investor can offer valuable experience and samples of hardship letters for the homeowner to create their letter. Ultimately it is the homeowner who is responsible for the letter, its content and accuracy of information.
Hardship letter writing tips.
You are going to have to get personal in your hardship letter. At this point in the process the homeowner should be fairly immune to any embarrassment involved with telling their story. This is also the homeowner’s opportunity to implore upon the lender to accept the smaller amount from the short sale. A well-written hardship letter is moving and personal and contains full back up proofs of the hardship.The more time, and the better the hardship letter is composed, the easier the short sale is going to be. The best hardship letter will convince the creditors that the homeowner’s situation is genuinely distressing and the lender would be better off accepting the lesser amount than pursuing a foreclosure.
Homeowners looking to stop foreclosure are faced with a number of options, one of which is doing a short sale. Some people, depending on their situation, may allow a property to go into foreclosure instead of attempting a short sale. One reason is they don’t want to keep the home in the first place. By accepting a short sale, the lender can avoid a lengthy and costly foreclosure, and the owner is able to pay off the loan for less than what he owes. The primary consideration above all is the affect both can have on your credit score.Â
The Basics Of A Short SaleÂ
The concept of a short sale is fairly simple. A short sale occurs when the sale proceeds of a house fall short of what the owner still owes on the mortgage. Many lenders will agree to accept the proceeds of a short sale and forgive the rest of what is owed on the mortgage when the owner cannot make the mortgage payments. Â A few words of warning are in order. Not every lender will negotiate a short sale. If for example your payments are current, yet you foresee imminent cash flow problems arising that will affect your ability to make your monthly mortgage payment. Lenders have no interest in negotiation unless your payments are several months late. Another consideration is you may be held liable for taxes on the difference between the sale amount and the original loan amount. Short sales require nerves of steel.Â
The Credit Affects
Foreclosure Without a doubt sellers will incur more damage on their credit report by going through foreclosure. Typically your credit score will take plunge between 200 to 300 points.
Short Sale Short sales have a far less damaging affect on a seller’s credit report. Credit scores typically lose between 80 to 100 points.  What happens to your credit down the road? It is takes around three years after a foreclosure before a lender will offer a sensible interest rate, whereas for a person who went through a short sale typically waits around 18 months to buy another home at a good interest rate.
Salvaging your credit should always be the primary concern when making the decision between a short sale and stopping foreclosure. The savings in interest payments alone should be convincing enough for most people, not to mention your buying power in the near and distant future.
I am frequently asked this question when I meet homeowners who are facing foreclosure. Often times, after we have determined that the seller can’t keep their home to avoid foreclosure (either because their monthly income is too low, or their monthly expenses are too high), they are left with the sobering reality that they must sell their home to avoid foreclosure.
In today’s real estate market, many times homeowners are upside down on their homes: in other words, they owe MORE than what the property is worth. With softening real estate markets across the country, this situation is becoming more and more common.
Many times, sellers ask me about the tax consequences of doing of a short sale. As it states in the article, the lender very well could issue the homeowner a 1099-C. However, it doesn’t mean that they WILL issue you a 1099-C.
Here’s a great analogy I use when I talk to homeowners who are short sale candidates and they bring up the issue of potentially getting a big tax bill from their lender. Let’s go with the example of the $300k debt and $260k Short Sale acceptance, just like in the article.
The bank basically “gave” them $40k.
If I could give you a winning lottery ticket for $40k, would you turn it down because you would have to pay taxes on it?
Of course you wouldn’t.Â
Which is exactly why, if you’re a homeowner facing foreclosure, you shouldn’t worry about the possibility of getting a 1099-C. It might not even happen (we work directly with each lender to negotiate that our client gets a total release). If it does, it’s a heck of a lot better than the alternative: a foreclosure on your credit report.
Need To Stop Foreclosure Fast? Watch This 57 Second Video:
