Relinquishing Your Home Sans Foreclosure: Short Sale and Other Options

Now that most loan servicers have foreclosure prevention programs, people tend to assume that they will never have to go through foreclosure, but that's not the case- not every situation can be so easily resolved. You may not always be able to keep your home, and when that happens, there are several options to consider.

Selling Your Home: If you actually have a pending sale contract or can demonstrate that you have put your home on the market, servicers may be willing to postpone foreclosure proceedings to allow you to pay off the entire loan form the proceedings of the sale. Don't forget you also have to cover other expenses involved in selling your home, such as real estate agent fees. This method can help you avoid damage to your credit rating, and you will be able to protect your equity in the property. This is a great option if it's possible.

Short Sale: Some servicers may even agree to postpone foreclosure even if there is a discrepancy between what you owe and what your house will garner on the market. Again, this forestalls the 'foreclosure' entry damaging your credit score, and it's tempting to have your debt forgiven at a lower price. According to the Mortgage Forgiveness Debt Relief Act of 2007, forgiven debt on a primary residence can be excludable from income on one's tax return. A short sale is almost impossible to negotiate, however, without a loss mitigation consultant or other professional to help you.

Deed-in-Lieu: This process consists of transferring the title to your property to your servicers in exchange for their cancelling/forgiving the rest of your debt. It involves losing your home, but it can definitely be less damaging than foreclosure to your credit score. Unlike a sale, however, a deed in lieu of foreclosure also results in a loss of all the equity on the house. And it may not be permissible if other loans or obligations you have are secured by the property on your home. You must be sure to have the servicer's agreement document in a deed-in-lieu, and you must be careful to read the entire outline of the agreement, because sometimes they can slip in certain things that you will not appreciate.

These are the resources of the last resort in loss mitigation and foreclosure prevention- don't forget you may have better options like a loan modification available to you before you have to lose your home.