If you are a homeowner facing foreclosure, chances are pretty good that you are not thinking straight. You have no money, you can't pay your bills, and the bank is sending you one notice after another warning you that if you fail to do something promptly, they will be forced to kick you out of your home. Unless you win the lottery, what recourse do you have?
It's easy to get overwhelmed in these dire situations -- so overwhelmed, in fact, that you may not even realize that you have numerous options to explore. In this article, I explain the most popular options, along with a few that are not quite so common. Depending on your situation, not all of these solutions will be available, but it's likely that at least a few of them will be.
Tip: Contact the bank who holds your mortgage immediately to discuss your options. One of the worst things you can do is avoid discussing the situation with your bank. I know it's uncomfortable, but how uncomfortable are you going to be when the sheriff shows up to evict you?
Staying put
If you really want to remain in your home and are willing to work hard to keep it, you probably have several options that enable you to do so:
Reinstate the mortgage: If you can borrow some money from relatives or friends, you can reinstate the mortgage by catching up on missed payments along with any interest, penalties, and fees your bank has applied to your account. Negotiate a forbearance: Your bank may be willing to set you up with a payment plan that enables you to catch up on your payments. Just be careful that the payment plan is affordable, so you don't end up in the same situation six months down the road. Refinance: If you have equity built up in the property, consider refinancing the current mortgage to reduce payments. If you have credit card debt, you may be able to consolidate all your debts into a single monthly payment that is less than the total payments you are currently making. Sell to an investor and buy it back: If you are running out of time, you may be able to sell your home to an investor and purchase it back with a lease-option agreement or a land-sale contract (also called a contract for deed). A lease-option agreement is sort of a rent-to-own deal in which you rent the property for a fixed period of time and then have the option to buy the property back at the end of that time. With a land-sale contract, you simply make payments to the investor who purchased the property rather than to the bank. In both cases, you sign a contract that almost always has a forfeiture clause stating that you lose the house and everything you paid on it if you do not honor the agreement, so check with your attorney before signing anything.
Sell to an investor and rent it: If the investor is buying the property for long-term rental income, he or she may be willing to rent it back to you, assuming you have proven that you properly maintain the property. This is an excellent option if you have kids in school and need several months or even a year or two to get them through school before moving. Redeem the property after the sale: Many states have a mandatory redemption period, during which time you can purchase the property from whoever bought it at the auction. You have to pay the buyer the amount he or she paid plus interest and any qualifying expenses the person paid (such as property taxes and insurance). Contact your register of deeds at the county courthouse to find out whether your area has a mandatory redemption period and how long it is. This option typically requires borrowing money from a relative, friend, or private investor. Selling your home
In almost 90-percent of foreclosure cases, distressed homeowners are best served by selling their home and finding more affordable accommodations. This is especially true if you have equity in the home -- that is, if you can sell the home for more than you owe on it. That way, you don't lose the equity (along with your home) in foreclosure. Here are some options for selling your home:
Placing your home on the market: Hire the Realtor in your area who seems to be selling the most homes to list your property. Tell the Realtor that you are facing foreclosure and ask whether he or she would be willing to accept a lower commission. (Some will, if only to generate a little positive PR.) On average, a Realtor can sell your home in half the time and for significantly more money than you can sell it for by yourself. Selling your home to an investor: If you don't have at least a couple months to sell your house, you may be able to sell it to an investor who can pay cash and close the deal in a hurry. In most cases, however, you are looking at having to accept about 20 percent less than the true market value of your home. Negotiating a short sale: If you cannot sell the home for enough to break even, your bank and other lenders may be willing to negotiate a short sale -- that is, accept less than the full amount owed on their loans. Lenders who hold second mortgages or other liens against the property may be more willing to negotiate, because they stand to lose everything if your home ends up being sold at auction. Walking out
If you have little, no, or negative equity in the property, don't really care about, and couldn't do anything about it even if you did care, consider walking away prior to eviction day. This will at least save you from the embarrassment of a forced eviction. Here are your options:
Offering a deed in lieu of foreclosure: Your bank may be willing to let you off the hook for the money you owe by turning in your keys and signing the deed to the property over to the bank. Make sure you have legal representation if you choose this option, so that the bank can't come after you later for any shortfall. Gifting the house and your problems to an investor: You may be able to deed the property over to an investor, who would be in a better position to negotiate short sales with your lenders to make the transaction profitable for himself or herself. Again, consult an attorney before moving forward. Walking out the door: Your credit is already going to be damaged if your home is sold at a foreclosure auction, so why not just walk away? Banks rarely pursue homeowners who simply abandon the property. Buying yourself some time
You can buy yourself some additional time in the property in various ways. Here, I discuss the three most common options:
Hire a foreclosure attorney. Don't settle for just any attorney. Hire one who specializes in foreclosure law. By simply forcing the bank and the bank's attorneys to follow the letter of the law, your attorney may be able to buy you several weeks, months, or even years in the house. Just be sure you weigh the costs and benefits, so you don't end up owning more money than before you hired the attorney. File for bankruptcy. To some people, bankruptcy sounds like an easy fix, but that is rarely the case. Bankruptcy is costly and often fails to resolve anything. You buy yourself some time but often end up owing more later. Do the math before you decide to file for bankruptcy. Stay without paying. Most states have a redemption period, during which time you can buy back your property from whoever purchased it at the auction. Doing nothing
The absolute worst thing you can do upon receiving a foreclosure notice is nothing. I recommend that you at least contact your lender. Better yet, try everything: Place your house on the market, talk to a loan officer about refinancing, discuss your situation with a real estate investor, and work on tightening your financial belt, so when you do finally get through this crisis, you come out of it in a little better shape.
