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What Other Alternatives to Foreclosure?

With more and more homeowners losing their homes to foreclosures and more slated to be foreclosed upon in the coming months, it is only natural that homeowners who are already struggling would become somewhat nervous. As the number of people facing foreclosure continues to steadily rise, it is important to make sure you understand that foreclosure is not the only option that is available to you in the event that you find it difficult to make ends meet. There are two other options that are available and can be used as alternatives to stop foreclosure. These options are deed in lieu of foreclosure and short sales.

It should be thoroughly understand that neither of these options will allow you to keep your home. In addition, neither of these options will prevent your credit score from being damaged. The benefit to both of these options; however, is that they can be less painful than foreclosure; which is a legal process by which the bank will actually repossess the property because you have been unable to meet the mortgage terms.

In the short sale option, the house will be sold at a fair market value but at an amount that is less than the amount which you owe on the mortgage. In most instances, the lender will typically agree to forgive the remainder of the debt that is owed.

In a lieu of foreclosure option, you will hand over the property directly to the lender, rather than actually waiting for the lender to foreclose on the property. With this option, it then becomes the lender's responsibility to see the home. Generally, the lender will consent to forgive the amount of the mortgage that actually exceeds the current value of the home.

The primary advantage to both of these strategies is that you will be able to walk away from the home and be free of the mortgage debt. This can be a tremendous relief in terms of legal matters as well as psychology. Within a foreclosure proceeding, the lender still has the option of pursuing the amount of money that you owe them, depending on the laws within the state where the property is located. While most lenders do not actually pursue the matter, that does not mean that it cannot happen, or has not happened in some instances. The most common situations in which this has happened is when the homeowner has vandalized the property before moving out of it.

In addition, both of these alternatives to foreclosure also provide other benefits, including the fact that you will usually have a shorter waiting period before you can obtain a new mortgage. If you are considering the purchase of another home in the future, it should be understood that most lenders will generally sell their loans to either Freddie Mac or Fannie Mae. Fannie Mae will typically not purchase a loan that has been made to a buyer who has had a foreclosure on record within the past five years or a deed in lieu of foreclosure during the last four years. They will; however, consider the purchase of a loan made to a buyer, provided they have not had a short sale within the last two years. Deeds in lieu of foreclosure and short sales will not save you from a negative impact on your credit, but they can help to minimize the impact.

If you consider a deed in lieu or a short sale, you should be prepared for the fact that you will need to present a hardship letter to your lender explaining why you are not able to make your mortgage payments. Considering the current state of the real estate market, more and more lenders have become willing to negotiate deeds in lieu of foreclosure and short sales because they know they will lose far more money if the matter proceeds to foreclosure.

When given a choice between the two different options, a short sale will typically be the best option because it does save the lender the trouble of having to sell the home. A deed in lieu of foreclosure can also provide advantages to lenders as well because the home will typically be in better condition, so many lenders do tend to prefer that option.

For homeowners, the best step is to be proactive rather than ignoring the situation and hoping it will go away. If you realize that you are having problems making your mortgage payments, go ahead and take action in order to avoid more serious consequences later on.



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