Your options to avoid Foreclosure

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Your options to avoid Foreclosure
2 years ago
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Some of today's homeowners are faced with the dilemma of deciding among a selection of options, none of which are very pleasant. For those homeowners with adjustable rate mortgages or ARMs, the choice is one in which they must decide where they can cut corners in order to afford the larger monthly mortgage payment due to higher interest rates or to face foreclosure. For those homeowners who took out interest only mortgages, they must also decide where they are going to cut corners in order to afford the higher monthly mortgage payment once the principal portion of the loan is added in.

Flexible or liquid cash has suddenly decreased dramatically in value due to the increasing cost of living. Even if the homeowner's level of income has gone up, most of these individuals are still faced with some very difficult decisions. Adjustments to their style of living must be made due to the increases in just about every type of expense they have.

Unfortunately, for some homeowners, the only choices that they are faced with are those associated with foreclosures. For them, there is no avoiding of this terrible fate. Nonetheless, do they need to simply roll over and allow bank foreclosure to take their homes away from them? Should they attempt to satisfy the lender with a deed-in-lieu instead? Can they save their credit history from the ravaging effects of a foreclosure status? Should they attempt a short sale and take what they can get to satisfy their debt, even if it does leave them with no where to live and bad credit?

At least some homeowners have options even if these choices are ones they do not like. The decision is a personal one that they can make perhaps allowing them the dignity to maintain control of their financial affairs, even if they haven't shown very good control up to this point in time. Unfortunately, this is small consolation to those homeowners who are faced with these decisions.

For some individuals, the best scenario might be to attempt either the short sale or the deed-in-lieu. At least their credit score and report will remain in tact without completely tanking due to a foreclosure. True, their score will be affected negatively and go down quite a bit, but the damage won't be nearly as bad as having a foreclosure listed on their credit report.

With a deed-in-lieu, the homeowner turns over the deed to the home in lieu of the debt that he owes to the lender. The homeowner must sign off on all claims to the home and willingly provides possession of the home to the lender. In exchange, the lender cancels the homeowner's debt in full. While this might preserve some financial credibility for the lender, he loses his place of residence and must vacate the premises as soon as possible, taking his possessions with him. Typically, the homeowner must leave the day that he turns over the deed, but some exceptions might be possible depending on the lender.

With a short sale, the homeowner places the house up for sale for less than what he owes the lender. The lower price is designed to generate a quick sale. The proceeds of the sale go to repay the debt on the home. Again, the homeowner must sign off on all claims to the home vacate the premises so that the new homeowners can move in. As with the deed-in-lieu transaction, the homeowner leaves with a credit score that is higher than it would have been with a foreclosure, and he retains his possessions.

With a foreclosure, the homeowner loses his home and all of the equity that he built up into it to the lender. Additionally, the foreclosure will remain on his credit score for ten years. His credit score will suffer and drop immensely in value.

By Susan M. Keenan 2009
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