Alternatives to Foreclosure

Alternatives to Foreclosure

For a borrower that has not been served with a foreclosure proceeding, there are several options available that may allow them to prevent foreclosure.

Short Sale
In a short sale, the homeowner puts the property on the market for the current value. The current value is often less than what is owed on the note. Once an offer is made on the property the bank will have to make a decision on accepting the sale price or proceeding with a foreclosure. There is no guarantee that listing the home on the market will stop a bank from pursuing a foreclosure. If you are served with a foreclosure lawsuit while waiting for your home to sale, it is important to seek the advice of an attorney. You do not want the bank to obtain a deficiency judgment against you.

Deed in Lieu of Foreclosure:
Basically a deed in lieu of foreclosure allows the homeowner gives back the keys so to speak. They agree to give up possession of the property. In return the bank may release the borrower from their obligation to make mortgage payments if a release of deficiency is negotiated. CAUTION: Some banks will only do this if you sign a promissory note for the losses they expect to take on the sale of the property. Other lenders will only agree to a deed in lieu of foreclosure if they have recourse. This means that they will be able to come after the borrower for any loses they may incur.
The lender or bank may do a non-recourse deed in lieu of foreclosure. This is the best case for a borrower. They give back the property, the bank takes the full loss, and they can not sue the borrower for any losses they had on the property. Generally speaking, this is the only deed in lieu of foreclosure that we would recommend to our clients.

Short Refinance
In a short refinance, a borrower obtains a new mortgage from a different mortgage company. They would then pay off an adjusted mortgage on their property. It sounds confusing but it is not. Let’s say that Jane has a mortgage for $300,000 on her primary residence with bank A. The home has dropped in value from $360,000 to $200,000. Jane makes a short refinance deal with bank A that they will take a payoff of $200,000. She then goes to bank B and borrows the $200,000 to payoff bank A. The idea is that simple, a person who would qualify for this would have to have steady employment and be able to show that they are able to make the payments on the new loan.

It is not too late to save your home. Call the office of Leslie Burgk and begin planning your foreclosure defense today.