Unfortunately, not every home can be saved through a mortgage modification. In some cases, the borrower’s income has dropped to the point that he/she simply cannot afford the home. In other cases, the loan should never have been made in the first place, and it is impossible to work it out. Even when you can’t keep your home, they may be some options to avoid foreclosure:
Short sale: You sell your house “short” of what you owe to the bank. If you want to pursue this option, you must find a buyer who wants to purchase your home and who can secure financing. You will then submit the offer along with your bank’s short sale package. Your bank may accept the short sale offer and write off the difference or it may decide to preserve the right to go after you for the difference. (In our office we refer to this as a “fake short sale.”) Make sure that you show a lawyer or a qualified real estate professional the bank’s release letter so that you know if the debt is being forgiven or if the bank is preserving the right to collect it from you in the future.
Deed-in-lieu of foreclosure: In a deed-in-lieu (“DIL”) you give your bank the deed to your property and the bank agrees not to sue you for foreclosure. A benefit of a DIL is that your credit will not be damaged as much as it would by a foreclosure and the bank will have waived its rights to go after you for a deficiency judgment – the difference between what you owe the bank and the auction sales price of your home. If you have second liens on your property – for example tax liens or liens for non-paid association fees, a DIL may not be an option.
Refinancing: Most people facing foreclosure have bad credit and won’t qualify. Also, most properties in South Florida are upside down and refinancing is not an option unless you come to the table with cash to cover the difference between the appraisal price and the amount of the current loan. Nonetheless, if you think this option could work for you, you should contact your lender.
Consent to Judgment: Once a foreclosure has been filed against you, you have the option of asking the bank if it will waive the right to seek a deficiency judgment against you if you do not contest the foreclosure. You will have a foreclosure judgment (a bad thing), but at least you will be able to go forward with your life without the fear that the bank will appear one day to seek a deficiency judgment against you. The bank’s incentive to do this is that it can get the property quickly and not at the end of a hotly contested foreclosure suit.
Cash for Keys: This is a variation of the consent to judgment. You offer to consent to judgment in the foreclosure suit in exchange for money from the bank to help you to leave. Once again, a bank may decide to accept this option rather than litigate because it gets the property faster and without having to process a lengthy foreclosure lawsuit.
Remember: If you don’t move on your foreclosure, your foreclosure could end up moving you!