Short Sales, Loan Mods and Deeds in Lieu of Foreclosure

What do these three things have in common?

Is your home unaffordable? That’s usually the common denominator that causes a homeowner to second guess whether keeping the home makes financial sense.

Lots of folks out there have tons of home equity, but can’t find money to pay the bills. Refinancing to take equity out makes little sense with interest rates over 6%. What options exist?

Sometimes, the value of your home may not exceed the amount owed on the mortgage and a regular sale is not possible to get out from under the mortgage.

So where to you start? First, you have to decide if it’s best to keep your home or let it go and start fresh elsewhere. We can help with that evaluation. Here are some of the options that should be considered:

Loan mods for those electing to keep their home are good to help reduce the monthly payment in line with current income. It’s also good for those who haven’t been able to make regular payments, but wish to avoid a foreclosure sale. A loan mod can be done for a homeowner regardless of equity in the home. Terms often include extending the amount of time you have to pay, lowering your interest rate, and even reduction of the principal balance of your mortgage. You’ll need to show regular income to prove that you can afford the home. If you don’t have income, then a short sale or deed in lieu of foreclosure is likely the better option for you.

Short sales are good for those who do not have equity, and need to sell the home under better terms than a simple foreclosure sale. Often, the lender and homeowner can work out a short sale whereby the lender may agree to forgive the remainder of the loan. A homeowner may avoid a negative impact on his or her credit score with a short sale versus a foreclosure and deficiency judgment. Ignoring a foreclosure is the worst possible option because that would result in a deficiency judgment for the balance of the mortgage note after the home is sold at auction. A deficiency judgment is something to avoid if at all possible, because then you are paying for a home that you no longer own.

A deed in lieu of foreclosure is an agreement whereby a lender agrees to take a property back under an agreement with the homeowner. This often involves forgiveness of all or part of the existing mortgage debt, better credit reporting than a foreclosure, and cash for keys/moving expenses paid by the lender. This option is often more favorable than a foreclosure and may result in an agreed upon move out date rather the uncertainty of when to leave the home. It also avoids constant collection calls from the lender.

Loan mods, short sales and deeds in lieu of foreclosure often require a showing of financial hardship. We generally do not find this to be a problem. If our client could afford the home, he or she likely wouldn’t be in need of legal assistance.

Because this is likely your biggest asset, it is well worth having an advocate on your side who knows what is going on and how to evaluate what is best for you and your family. You need objective advice. The decision of what to do is ultimately yours, but having a knowledgeable attorney on your side to help negotiate what can be complex terms with the lenders is important.

We can help take the worry out of the foreclosure process and help you decide which route makes the most sense and fits your overall goals.