In the beginning of the foreclosure process, homeowners can still save money, their credit or their house if they act quickly. Even when declaring bankruptcy, avoiding a foreclosure on your credit report can salvage your ability to rebuild credit and buy another house, which makes the struggle against a possible foreclosure well worthwhile.

1. Sell the property. If you can find a buyer before the house is auctioned, you can sell it and keep whatever equity still exists. This is easier said than done in the current crowded marketplace, but there are still plenty of things you can do to make your property more appealing to potential buyers.

2. Work out a deal. Your lender may be willing to work with you, rather than lose money at a foreclosure sale. This is especially true now that the government is engineering set criteria for adjusting interest rate, loan term and principal down to levels struggling homeowners can afford through the Making Home Affordable program.

3. File Chapter 7 bankruptcy. If you can’t get caught up in time, you will not be able to keep the house — but you’ll generally be able to delay the foreclosure sale a month or even several months. Any remaining debt to the lender will be wiped out.

4. File Chapter 13 bankruptcy. If you can afford to make the future mortgage payments and the delinquent payments, too, file Chapter 13 bankruptcy. This is different than Chapter 7, in which assets are liquidated but debts are wiped clean. With Chapter 13, you keep your assets and, under court supervision, you repay your debts under a three-to-five-year plan

5. Short sale/deed in lieu of foreclosure. A short sale takes place when the bank allows you to sell your property even though their mortgage won’t be paid. Be careful — the bank may allow the sale to go through, but only on the condition that you repay the deficiency. In a deed in lieu of foreclosure, the property is signed over to the bank in exchange for the bank giving up its rights against you. Why might a bank agree to either of these? Lenders spend $30,000 or more to foreclose on a property. Most lenders will consider these options to avoid foreclosure costs.

6. Walk away from the house. Pack your things and leave. The only issue remaining is whether your lender can sue you for any deficiency still owed after the sale, and that depends on the state you live in and the type of mortgage you have. You’d be wise to speak to an attorney before taking this step.

Any sale or transfer of property has tax consequences, including a foreclosure sale or a deed in lieu of foreclosure. Seeing an accountant is probably a good idea, as well.

Here are two options NOT to consider. In other words, they’re scams.

1. Signing over your property title to another company: Some companies say that after the mortgage is current they will re-sign the property back over to you. This rarely happens. Instead, the company is likely to pull out equity, not make any mortgage payments and allow the property to be foreclosed. You will not be able to save the property from future foreclosures because the property is no longer in your name.

2. Get loan modification help from a non-HUD-approved housing counselor: In the wake of the housing crisis, unscrupulous firms are advertising mortgage modification help. In reality, they charge hefty fees upfront and may sabotage borrowers with hefty interest-rate hikes down the road or simply take the money and run. As the Treasury Department’s new Web site FinancialStability.gov puts it: “Beware of any person or organization that asks you to pay a fee in exchange for housing counseling services or modification of a delinquent loan.”

When facing foreclosure, you have options, but you need to avoid the scams and act quickly if you want to have the best outcome. Delaying only makes foreclosure inevitable.

Tags: Foreclosure, Home Seller, Real Estate, REO, Selling a Home, Short Sales

This entry was posted on Tuesday, December 8th, 2009 at 10:45 am and is filed under Foreclosures & Shortsales, Real Estate, Sellers. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.