The thought never entered your mind! You bought your home with the best of intentions. Perhaps the lender assured you that you could "just refinance" when those heart-stopping payment increases began. Perhaps no one even explained to you what could happen?

But here you are! With house payments that you can't possibly pay...in an area with a depressed real estate market. You owe more on the house than it is now worth. Your chances of selling the home to break even are slim to none.

You could be in for a rough ride! What can you do?

The first thing to consider is why you are in this situation. What circumstances are preventing you from making your house payments? Foreclosure may possibly be avoided!

• Is this a temporary situation?
  
• Have you been laid-off or lost your job?
  
• Has an illness put you behind?
  
• Has your interest rate increased too much?
  

The answers to these questions will make a difference in your approach to this problem.

Let's start with the easy ones. If an illness or job lay-off has put you behind in making payments, the most important thing you can do is communicate with your lender.

Many times, the lender will work with you. They have a lot of foreclosures on their books right now...and they don't want another one. If you have had a history of making your payments on time, the lender will most likely help you. They can sometimes add your late payments on the back end of your mortgage...and bring you current on your payments. This is by far a better solution than foreclosure.

What if there is no other answer but foreclosure?

What options are available to you?

Always try to sell the home before it gets to foreclosure. If you live in an area with high visibility, try to sell the home without involving an agent. this will save quite a bit of money that might make the difference in whether or not you can break even.

If selling the home is not possible...perhaps you owe too much or have already added a 2nd mortgage to your list of problems, it's time to consider more drastic measures.

A short sale might be your answer. A short sale occurs when property is sold for less than the amount of money owed. Sometimes the lender will decide that their interests are best served by accepting less than what is owed in mortgages on a property.

Typically, the lender will want a Realtor involved in a short sale because of the amount of work and legalities involved. You might contact your Realtor to discuss these options because you will have to have an offer in place to begin this process.

The short sale will still result in damage to your credit rating, but it's not quite as bad as a foreclosure.

The foreclosure process will depend on the state in which you live. Some states have judicial foreclosure, which is a court-ordered action. The lender obtains the right to foreclosure by filing and winning a lawsuit.

Most states are non-judicial states. This type of foreclosure typically takes less time to complete than judicial foreclosures. This is because the borrower pre-authorizes the sale of the home in the loan documents.

The timeline for non-judicial foreclosure is usually 3-5 months. The motion will be filed with the court after 90 days of non-payment. At this point, there must be notices placed in newspapers and at the court house...usually 21-25 days. After this period has passed, the property is sold in a trustee sale or becomes inventory for the lender.

Are you aware that you will most likely receive an IRS 1099 for the difference in the short sale and what you actually owe? This is considered income for you and can result in a large tax bill for you at the end of the year.

Sometimes, the lender will accept a "deed-in-lieu of foreclosure". The property still goes back to the lender...but saves the expense of foreclosure. The damage will still be on your credit report. But again, anything is better than full-blown foreclosure.

If bankruptcy is involved, it may forestall the foreclosure by a few months. If you are filing for bankruptcy, please consult your attorney about this issue.

It is always wise to keep the communication lines open with your lender. Explore all your options...because they lender wants to avoid foreclosure as much as you. Work with them!

We always enjoy hearing from you, so please contact us with any questions.

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