How to avoid foreclosure

October 27, 2012 21:33

There are a lot of alternatives to foreclosure.

We are living in a very difficult economy. Unemployment is very high and many people are having a hard time making ends meet. Foreclosure rates are at record highs because homeowners are not able to make their payments, and they are not able to sell their homes because they owe more than house is worth.

There is are many alternatives to Foreclosure, and I would be happy to discuss these options with you. Don't let your home go into foreclosure without first exhausting your options: reinstatement, forebearance, refinance, loan modification, selling the property, renting the property, deed in lieu of foreclosure, bankruptcy and doing a short sale.

I have been trained to help owners to avoid foreclosure, and I may be able to help you. I have a CDPE (certified distress property expert) certification, and I have been a REALTOR for 9 years, so I have the experience and the contacts to assist you.

Top 10 reasons to consider a short sale instead of foreclosure:

1. Your credit history may be affected by a foreclosure for up to 7 years, but currently short sales are not reported on credit reports. A short sale occurs when a property owner sells the property for less than what is owed, and the bank absorbs the loss.

2. Current and future employment can be affected by a foreclosure. More and more employers are looking at credit reports of current and future employees.

3. If you go through a foreclosure, your security clearance might be affected or revoked. Government and other employers who take security seriously do not like to see foreclosure on the record of the people who are in contact with sensitive or secure information.

4. Your credit score gets savaged by a foreclosure, but a short sale is not as bad. There are some common terms like late payments and paid as agreed that are used on credit reports. However, these terms seem tame compared to FORECLOSURE, and the effect of these terms is significantly shorter than foreclosure.

5. It will be harder to get future loans if you go through a foreclosure, and you will likely pay a higher interest rate. Furthermore, it will be harder, if not impossible to get a Fannie Mae back loan for 7 years after a foreclosure. For a short sale, that time frame might be as little as 2 years.

6. A short sale is a more dignified exit strategy for a homeowner because a foreclosure is a event: a auction, notice of default in the newspaper, doors posted with legal notices, etc. Also some sellers decide to do a short sale because they feel like it is the right thing to do because the banks losses will probably be less in a short sale situation.

7. You will probably experience a higher deficiency judgment, in states that allow deficiency judgments, in a foreclosure because: prices might continue to drop, additional payments might be missed and legal fees would be added to the banks losses. The net amount that the bank would receive would be lower, and that translates into a higher deficiency.

8. The bank may attempt to collect the deficiency after foreclosure, but in a short sale, you may be able to get the bank to forgive the deficiency.

9. In some cases, a foreclosure could provoke a 1099 event for the amount of debt that was not paid to the bank. This is sometimes called a phantom tax. If this does occur, the bank's loss would likely be less in a short sale situation, and this might result in a lower tax burden for the seller.

10. There may be some financial benefit for sellers in a HAFA (Home Affordable Foreclosure Alternatives) program, like borrower relocation assistance for up to $3,000.

In summary, the property owner has many benefits in a properly executed short sale, and clearly the damage caused by a foreclosure is much more drastic.

In this article, I have used words like an, may, could, would and might quite a bit. This is because a short sale is better than a foreclosure when it is properly executed by an informed seller and a willing buyer who have hopefully been properly advised by professionals. If a short sale is not skillfully executed, many of the benefits would evaporate. Please consult with an attorney, a tax professional and a licensed real estate agent before entering into a short sale.

I would like to thank and credit the CDPE (Certified Distressed Property Expert) training program for much of the information that I have used in this article. I also have drawn upon 9 years of professional real estate experience in preparing this post.

If you would like for me to do some research for you, at no charge, to see if a short sale is a good option for you, please send me an email: or give me a call 503-810-2219.


Brian Porter