Foreclosures are the #1 hot topic in Real Estate in today's market. You don't have to be a Realtor or real estate investor. You can have a regular job and work in corporate America. You can work for McDonalds, Coca-Cola, Pepsi or the local mall.

But you really learn about foreclosures fast, when it strikes. It could be due to increased payments, or illness. It can happen through job loss or a divorce. And in today's market it is not an uncommon story. But you can learn what to do to protect yourself and your family.

If you CANNOT sell your house in today's market, there are basically 6 options other than the dreaded foreclosure auction.

NOTE: The foreclosure auction and the credit hit you will take is the single worst thing you can do to your credit. Bankruptcy is a 7 year black eye but a foreclosure NEVER goes away. Avoid it at all costs.

Options other than foreclosure:

1 - Forbearance: A forbearance agreement is when you pay 40% to 50% of the arrears (what's past due) and attorney fees and the rest is tacked onto your monthly payments over the next 6 to 12 months. So for example - if you are $5000 late (in arrears), you might pay $2500 to the bank now and $250/month for 10 months to catch up. In addition to the regular payment. Yippee - extra payments!

NOTE: Statistically 85% of people who do this go late again within 90 days. They just can't keep up with the extra payments.

2 - Loan Modification: A loan modification is when you pay the bank part of the arrears and attorney fees, and the rest is put onto the end of the loan. So same scenario. $5000 late. You pay $2500 now and the other $2500 is put at the end of the loan (modify the loan), extending it to cover the balance. The payments remain the same. Easier to handle.

NOTE: Banks usually offer the forbearance NOT loan modification.

3 - Conveying the Property: This is an option in which someone moves into your house to make the payments for you, for a period of time. Then in a year or two, they get a new loan and retire. or cash out. your old loan. This is actually good for your credit. People are usually in arrears when they use this option, so their credit has been damaged. The payments, if made on time, actually help clean up the damaged credit, due to the preciously late payments.

NOTE: Watch who you allow to do this. Homeowners have been blindsided with people moving in, NOT making the payments and then won't move out.

4 - Deed in Lieu: This is where you give the house back to the bank 'In Lieu' or 'Instead of' Foreclosure. Saves the bank time and money.

NOTE: Be careful of a deficiency judgment. In some states, the bank can come after you for money that they lost when they finally sell your house again. If you owe $300,000 and they sell the house for $250,000. You would owe $50,000! AND your credit is ruined forever. Nice bonus. Ouch!

5 - Bankruptcy: Usually a chapter 13, which is a reorganization of your debt. This can allow extra time to get things resolved with the bank and stop the foreclosure auction sale.

6 - Short Sale: A short sale is where the bank will sell the property for less, rather than having a bad debt on their books. The bank will discount what a homeowner owes, or forgive some of the debt to get the house sold. This can be a magic wand to resolve the foreclosure situation.

Foreclosures are the #1 hot topic in Real Estate in today's market. A Short Sale can help homeowners, realtors and investors work with banks and all win? More on that next time.

Thanks for the ear and have a great day!

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