How to Avoid Foreclosure

With the subprime implosion in full force recently, millions of American homeowners find themselves defaulting on loans and facing the nightmare of foreclosure.

As a result of the disadvantages foreclosure offers to both the homeowner and lender, more and more Americans are looking to several other viable options to steer away from the drawn out and at times, risky process which foreclosure offers to both parties. Owner and CEO of I Short Sale, Inc., Eli Tene, suggests four alternatives to foreclosure which can save a homeowner’s credit and the lender’s time and money.

One of the first options a homeowner has to avoid foreclosure is a Loan Modification, or Loan Restructuring, which is simply a permanent change in one or more of the terms of the mortgage loan. For example, if you are unable to make payments at a given rate, a modification could be negotiated with your lender to extend the loan period. If a homeowner runs into temporary financial hardship, the next option is to negotiate for a Loan Forbearance, which reduces or delays payments for a short amount of time with the understanding that the account will eventually be brought to a current status.

While these two options do serve as practical alternatives to foreclosure, they still leave homeowners with the same burden of debt. Homeowners do have the option of offering their lender the deed of their home in lieu of their mortgage debt (Deed in Lieu). However, the homeowner’s credit still may be harmfully affected by negative reports and lenders will rarely accept an offer that would only add to their REO Portfolio, which requires time and money to manage.

The more favorable option, according to real estate expert, Eli Tene, which considerably benefits both the homeowner and lender, is a Short Sale. Short selling is an agreement wherein the lender allows for the homeowner to sell the home at a price lower than the mortgage debt amount. The lender will then take the proceeds from the sale as a settlement for the mortgage debt. Short selling becomes a beneficial alternative when the homeowner’s mortgage debt is higher than the property’s value.

Tene indicates that, “Not only is the homeowner’s credit protected from negative reports when engaging in a Short Sale but, he or she is released entirely from the debt associated with a defaulted loan. What can be better than getting out clean and not having to deal with terrible credit. The lender also benefits by not having to deal with the time and costs of repossessing the home. It’s a win-win situation!”

Whether a Short Sale or any one of the other existing alternatives is good for a homeowner depends on the surrounding circumstances of each situation. Before revealing any information to a lender, Tene advises to contact a specialist first, and at the appropriate time. “Regardless of the homeowner’s options, acting sooner than later is crucial. Sinking deeper and deeper into delinquency can lower the chances of successfully carrying out one of these alternatives to foreclosure.”

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Posted On: Woodland Hills, CA July 1, 2007

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