With the current credit crunch that dangerous period of time is now.  As these subprime mortgages reset to higher rates and thus higher monthly payments, many of these homeowners are in a financial bind. Many may even lose their homes because they can no longer afford payments. Should the homeowner lose income due to job loss the problem becomes more acute. Foreclosure proceedings usually start when a homeowner is ninety days late.

If you have an ARM, you should look at your personal finances to insure that you will remain solvent in these upcoming tough economic times we are facing in this recessionary period. Aks yourself these questions. How high can your monthly home loan payment go? Will you be able to afford it when it resets? Talk to your financial adviser and determine if refinancing to a fixed rate is the best thing for you to do. I believe that locking in a 30 or 15 year fixed rate home loan is the safest choice you can make at this time although everyone’s situation is different.

There are many mortgage and home loan companies that will provide you with refinancing options for your adjustible rate mortgage. Unfortunately, given the credit crunch, many of these companies have become much more stringent in regard to your credit worthiness for a fixed rate home loan. Today, it is much harder for most people to be able to borrow money than it was when they initially purchased their home or took out a second mortgage or home equity line of credit.

Do you need to refinace your home loan to avoid the subprime adjustable rate mortgage trap?

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First of all, remember that if you’re in danger of falling behind on your mortgage payments it’s best to be proactive and move quickly to resolve the situation. If you act early, you’ll face fewer consequences financially and emotionally. Delaying and ignoring the reality of the situation will only make things worse for you.

Most mortgage loans are due on the first of the month and the borrower typically has a grace period of 5 to 15 to make the payment without a penalty. After this grace period most lenders impose a late fee that’s typically 3 to 5% of the missed payment. Some mortgage lenders have gotten more aggressive in calling home owners during this period over the past year. They’re doing this to head off potential problems down the road and to get a feel for the borrower’s financial situation. Naturally, it’s best not to be late on payments simply to avoid the late fee. These fees can add up and hurt you financially, especially if you’re struggling.

At 30 days past due, the problem becomes more serious because the mortgage lender will report you to credit reporting agencies as being delinquent. This single report can drop an excellent credit score to a below average credit score although some evidence suggests that credit scores that are already average and below average as less affected by this. This black mark on your credit score will make it more difficult to qualify for new loans, including a refinance on the home. It will also make other loans, like auto loans, much more expensive.

Also, at 30 days, you will begin to get calls from the collection department within the mortgage lender’s organization. Their typical home loan relief option is for you to make your back payment and current payment now. If you’ve faced a temporary financial set back, such as a short job loss, natural disaster or medical expense, and you will be financially able to get caught up, this is the point where you might want to consider working out a forbearance agreement. This agreement will allow you to get caught up on the missed payment over a 3 to 6 month time frame while stopping the foreclosure timeline. Of course, if you don’t meet the payment commitment, the lender will probably move more quickly toward foreclosure.

The payment negotiation period typically ends after 3 mortgage payments are missed, roughly 90 days. However, some lenders have let this go for longer periods given the current state of the real estate market and general economic conditions. But the negotiation period ends when the mortgage lender files a “notice of default” with your local courthouse. They will send you a certified letter, usually from their law firm, stating that the the foreclosure process will begin unless you make good the missing payments plus late fees and legal fees, typically within 10 business days.

At this point in the foreclosure timeline you should have already contacted the loss mitigation department of your lender. Depending on the lender and the type of loan, they may be able to offer you loan modifications, longer term forbearance agreements and other ways to avoid foreclosure. If your financial situation won’t be good enough to avoid foreclosure, you can still negotiate slightly less damaging alternatives such as a short sale or deed in lieu of foreclosure. Once the legal notice is filed, most lenders become a bit more hard nosed since they’ve had to pay a law firm so it’s quite important for you to try to work out something before things get to this state.

Another thing that happens at this point in the foreclosure timeline is that the borrower’s credit score is further damaged. Public notices like a notice of default are picked up by credit bureaus and this will depress credit scores to the point that getting almost any loan is impossible.

Since the notice of default is a public notice this will also bring a slew of scammers and opportunists to your mailbox, phone and even to your home. You’ll get all kinds of offers to ‘help’ you out but most of them will be dishonest to one degree or another. Be very wary of entering into any kind of buy back or foreclosure prevention program, especially if they involve you making payments to a third party or signing over the deed to your home.

After the notice of default, the borrower typically has about 90 days to make up the payments and fees in full. In states where non-judicial foreclosures are used a “notice of sale” is presented to the borrower, once again from the lender’s law firm, and this notice is made public as well. This means that the house will be sold at the next available legal sale date in that state or locality, usually 15 to 30 days after the notice. In judicial states, the process is often different but will follow a common time line. In this case, it’s best to consult a local foreclosure attorney to get an understanding of a particular state’s legal procedures and foreclosure timeline.

Lastly, you can halt foreclosure prior to the sale date if you bring the loan current and pay fees. For most people in this dire financial situation it’s not possible but some people have been able to do this. Some lenders will delay the sale and reinstate the loan if a substantial portion of the payments owed are paid and an agreement is struck to pay off the remaining fees in a short time. Others may delay the actual foreclosure pending the closing of an approved short sale deal. Others won’t do this. Of course, foreclosure can be also delayed by filing a lawsuit against the lender or declaring bankruptcy but these are basically stalling the inevitable and only put off, and don’t stop, the foreclosure timeline.

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If the foreclosure process has been handled properly many of the typical problems with buying a foreclosure at the courthouse steps are taken of prior to the home going into a REO inventory. Major banks generally hire a foreclosure property management company to insure that the house is officially vacated by the prior owner and not vandalized by them. This also should prevent you from being caught up in lawsuits brought by delinquent borrowers and having to evict them. One of the first things to check is if the mortgage lender who’s listing the REO property has taken care of these important details. If the home in question is still occupied or in obviously poor condition it’s best to pass on it in most cases. However, it is important to note, that foreclosure property management services do not include a proper home inspection or guarantee against other potential problems.

As with any primary home purchase it is essential that you have the property inspected. Even if you’re buying for investment purposes an inspection may save you thousands of dollars. Many people get caught up in the competition and quite often the novice REO buyer ends up purchasing a money pit. Sometimes REOs are sold at auction where you can’t get a full inspection report ahead of time. In this case, leave the buying to the pros with a lot of cash on hand who can take a loss if the property turns out to be a dud. Don’t bet the farm on an uninspected REO home unless you’re willing and financially able to take the risk.

One thing that you have to consider is that a REO home might have structural issues that led the prior owner to the tough decision of letting it go into foreclosure. For example, some homes in foreclosure in Florida right now have defective Chinese made drywall that will cost thousands of dollars to correct. Other homes might have serious termite damage. Others may have dangerous mold issues. There have been reports of expensive homes built during the housing boom that were so poorly constructed that they’re essentially worthless because they’re falling apart.

Beyond the serious problems, you can expect the REO home to have some damage simply from someone living there and general wear and tear. You should budget for at least new carpet and new paint in any REO home you buy. You will probably also need to make drywall, hardware and other general minor repairs. Also, it is quite likely that the HVAC system will need maintenance and, if the home is more than a few years old, a new roof.

The bottom line is that you should have cash reserves equal to about 10-15% of the purchase price for repairs. Do not count on credit for these repairs since today it is quite common for banks to refuse equity loans on previously foreclosed properties. Using credit cards or lines of credit for these repairs is also risky in today’s financial climate. In today’s real estate market cash is king.

It is also quite important to make sure that any outstanding liens and back taxes have been resolved. Depending on the state laws, you may be responsible for these items as the buyer of the foreclosed property. You do not want this to come as a surprise to you after the fact. If you don’t know what you’re getting into this could significantly increase the cost of the home, making a great deal into a nightmare. For your own protection you should always consult with a local real estate attorney before buying a foreclosed REO property so that you understand your potential legal liability.

Most banks make a list of REO properties for sale available online or go through a real estate broker or management firm who handles this for them. My recommendation for the novice buyer is to go through a real estate agent who specializes in selling foreclosures and REOs or a REO specialist. While the savvy real estate investor can save money with a do-it-yourself approach the risk to the beginner is quite significant. That’s why it’s best to work with seasoned real estate professionals when buying a REO property.

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Just mailing the keys to the mortgage holder, aka “jingle mail”, and walking away is a bad idea. After all, you signed a contract to make payments on the home loan as agreed. If you find yourself unable to meet these obligations there a number of remedies you can pursue to discharge the home loan debt properly.

Naturally, you may feel frustrated with your situation. Many inexperienced borrowers found them tricked into taking on loans that they were obviously going not be able to pay back. Even experienced borrowers have been hurt by the boom and bust of housing prices. However, the excesses and mistakes of the past don’t discharge the debt. Even if you were a victim of predatory lending practices or out and out fraud, you still need to go through proper legal procedures. In short, you have to follow the rules in order to properly deal with your problem. Walking away from your home loan obligations isn’t following the rules. Remember, it is in both your best interest and the interest of the mortgage holder for you to stay in your home and paying a mortgage.

In some cases, you might be able to qualify for a loan modification that would allow you to stay in your home with a mortgage that’s been modified to better fit your financial situation. The government has recently created a $75 billion program to help people with out of control home loans. You should contact your mortgage company to discover if you qualify for this home loan modification program.

However, if you can’t qualify for a home loan modification then you will need to try for a short sale. This is where, with the agreement of the financial institution that holds the mortgage, you sell your home for less than what you owe, typically at the current market value, and the bank agrees to forgive the difference. These days it can be difficult to find a qualified buyer who can get a home loan even at the reduced prices.

In this case, the home loan lender may be willing to accept a deed in lieu of foreclosure. When this happens, you sign the house back over to the mortgage company and they forgive some or all of the debt you owe. You will need to work out the deals of this agreement with the mortgage holder. If at all possible you will want to have some qualified legal representation to help you through this process. Some former homeowners who’ve done a deed in lieu of foreclosure have found themselves still on the hook for thousands of dollars due to a bad agreement.

Another thing to understand about a short sale or a deed in lieu of foreclosure is that it will place a serious bad mark on your credit for several years. It will typically be 2-3 years before you can easily borrow money again for even small things like a credit card or vehicle and most likely 5-7 years before you can qualify for another home loan. Also, there are tax implications when a debt is forgiven. You may end up owning a big tax bill as well so make sure that you examine this aspect too.

If you can’t work out a deed in lieu of foreclosure agreement this only leaves foreclosure itself and bankruptcy. This isn’t a great option for either you or the mortgage holder. This is the result of a failed negotiation, either on your part, the bank’s part, or of both parties. My recommendation is that if you find your home loan in trouble that you begin seeking alternatives to foreclosure with your mortgage holder as soon as possible.

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Foreclosure rescue firms have many different ways to find potential clients. Some of them simply check local foreclosure listings in local legal announcement newspapers or directly access public records at local government offices. These rescue firms will often send very well crafted personal looking letters to desperate homeowners. Other foreclosure firms cast a wide net and use Internet advertising, TV spots, newspaper ads and even fliers. No matter the method used the advertising typically features a simple message like “Stop Foreclosure” or “Save Your Home” and will be rather spotty on the details. Legitimate financial counselors don’t advertise this way in most cases.

Some will tell you that they can guarantee you that they can stop your foreclosure. Well, they can’t. This is entirely up to the lender, especially once the foreclosure legal procedure has begun. No legit housing counselor will make such a guarantee to you. Some of these foreclosure rescue firms tout that they have special business relationships with banks and mortgage lenders that will allow them to ‘fast track’ mortgage loan modification. Often, this isn’t true and, anyway, lenders will refuse to negotiate with third parties unless they’re a practicing attorney or a HUD certified housing counselor. Remember negotiating a loan modification or a short sale is a long and complex process and anyone who’s promising quick results isn’t being truthful with you.

One thing that these foreclosure rescue scammers will tell you to do is to not contact your lawyer and not to speak with the lender. This is a classic con job tactic that’s meant to keep you from communicating with people who might expose the scam to you. You should be suspicious of firms who request a fee before providing you with services. Even worse are those who ask for wire transfer payments or tell you to send your house payments to them rather than to the lender. Those who operate in person will try to pressure you into signing paperwork without explaining it. As we’ll see in a moment, this is particularly dangerous.

Perhaps the most common con is that of a fake housing counselor. These tricksters will tell you that they can save your house from foreclosure if you’ll only pay them an upfront fee roughly the same as your mortgage payment. They’ll pass themselves off as having great negotiation skills and special connections with your lender. They’ll also tell you not to contact anyone else about this special deal in order to keep it secret. As you can guess, the conman runs off with your money.

Another foreclosure rescue con that they’ll pull is to offer to get you into a new home loan that will pay off your existing mortgage loan or simply bring it current. In this case, the unwitting homeowner signs a document that turns over the house title to the scammer. They do this by pressuring you into signing quickly or by presenting you with overwhelming paperwork. The really sad part is that many victims don’t realize they’ve been conned until the sheriff shows up with an eviction notice.

Another trick that foreclosure rescue scammers pull that’s more legal but still very sneaky is a rental scheme. In this scamming technique they offer to buy your home and then allow you to stay in it as a renter and buy it back over time. They’ll say that once you’re released from the burden of the original mortgage it will be easy for you to get a new loan to repurchase the home. Unfortunately, it doesn’t work this way. Sometimes the conman just cashes out the equity and defaults on the loan, resulting in the mortgage company evicting the renter, the previous homeowner. Another way this works is for the scammer to keep raising the rent until the original homeowner can’t pay and is evicted. Sadly, this process, although highly unethical, is legal in most states.

A similar ‘sign over the deed’ trick is a buy out-move out con. In this scam the homeowner is told that a ‘white knight’ financier will buy the house from them and hold it until it sells for a profit. They’ll tell the owner to transfer the title to the house and that they will need to move out so that they can ‘flip’ the house easier. When the house sells at a profit, they promise to share the profits with the original homeowner. But, what usually happens is that the scammer simply rents out the home and pockets the money, letting the house fall into to foreclosure under the owner’s name. This creates an ugly surprise for the homeowner, because they’re still responsible for the mortgage, and for the unsuspecting renter as well.

The last foreclosure rescue scam we’ll look at is the unauthorized bankruptcy. In this paperwork shuffle con, the homeowner signs a document allowing the scammer to file bankruptcy on them. This is usually done in the guise of an offer to renegotiate the home loan with the lender or to get refinancing. This is always accompanied by an upfront fee. While bankruptcy will stop the foreclosure, at least temporarily, it does have considerable legal and financial repercussions that can be quite difficult to deal with.

Be wary of these foreclosure rescue scams and protect your financial future.

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The traditional advice given by financial experts is for a troubled homeowner to contact their lender as soon as they begin to fall behind on their mortgage. After all, it’s assumed that the lender wants to do everything they can to avoid an expensive foreclosure. Does this assumption still hold true in today’s real estate market? The experiences of many troubled homeowners seems to indicate that this is no longer the case. They’ve found the path to obtaining a lower interest rate or more manageable payment to be very frustrating.

The cause for this is really rather simple, there’s no financial incentive for a lender to offer a loan modification to most homeowners. As it turns out, many lenders aren’t really lenders at all. What they actually are is a loan servicer. This means that they essentially take the mortgage payments and distribute these payments to the actual investors.

Most home loans over the past 10 years have been bundled and sold as an investment instrument. This has created a market for loan servicers, companies or divisions at banks, which simply manage the accounts and are paid a commission for doing so. They don’t have the legal authority to modify conditions of the loan. All they can negotiate are repayment in full plans or forbearance plans.

The actual owners of the home loan are the hundreds or even thousands of investors who own a part of many loans. They would all have to agree to change the terms of a mortgage contract and this is unlikely to happen. Thus, the loan servicer has a strong incentive to stall or delay any kind of loan modification. Why? Because they get paid a commission to do it. They get paid by the investors for their collection efforts up until the actual sale or foreclosure. However, they will not profit if a loan is modified.

The first step to avoiding frustration in the loan modification process is to determine who your mortgage holder really is. If your mortgage has been sold as part of a security, the chances of you being able to get a loan modification is rather low. In this case, you should prepare yourself for other options, such as a short sale, deed in lieu of foreclosure or a foreclosure, or find a way to bring your mortgage current and continue to keep it current.

There could be changes in the law that would remove the financial incentive for mortgage loan servicers. Several have been proposed in Congress, the Obama administration and the SEC. However, until the law is changed troubled homeowners, their communities and the actual mortgage investors will continue to have a no-win situation on their hands when it comes to mortgage loan modifications.

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The main reason people are choosing to take this drastic step, in spite of having a good job with sufficient income to pay their mortgage, is that housing prices have fallen so far in some areas and may have little hope for recovery any time soon. People just can see continuing to invest money in an asset that no longer has the value they expected, even given the considerable negative effect strategic defaults have on a person’s credit score.

In the past, strategic defaults were rare. Generally, mortgage defaults were caused by a serious financial problem the borrower encountered, such as long term job loss or a medical crisis. Occasionally, there would be strategic defaults by people who had purchased a dangerously faulty home or who had another non-financial crisis but this was quite rare. In most cases, people were willing to tough out bad situations in order to save their home and credit. But, today, this may be changing.

Financial experts have long assumed that 99% of the time a homeowner would not chose to face the serious consequences of defaulting on a mortgage. They believed that borrowers would rather deal with problems associated with a home rather than having their credit ruined and never owning a home again. But, this attitude seems to be changing. Why?

In areas that have been hard hit by the housing crisis, such as California, home values have fallen an average of 45% from peak prices of 2005-2006. This would make a house that was worth $500,000 in 2006 worth about $275,000 in 2010. What’s worse, economists are predicting that home prices may not rise significantly for 10 to 12 years in certain hard hit areas. This economic climate makes strategic defaulting an attractive choice for many homeowners.

On paper, it makes sense to do a strategic default for people living in certain areas. Since home values are expected to remain low for so long, a homeowner could potentially lose thousands of dollars should the sell their home or simply lose the opportunity cost for thousands in mortgage payments. The classic argument against renting is that you’re thowing money away, but, when there’s not equity to be gained from owning real estate it makes this argument less compelling. With rents depressed as well, a strategic default could put $1000 or more a month in the former homeowner’s wallet, freeing them up to purchase things, pay off other debts or even save money.

Also, in the era of big bank bailouts and long distance commuter subdivisions there is less civic pride to serve as a psychological barrier to strategic defaults. People today tend to see mortgage lenders more as “Mr. Potter” than “George Bailey” and thus don’t feel bad about defaulting on a mortgage loan that they believe was taking advantage of them. Also, with people less connected to their neighbors, they’re less likely to feel badly about the consequences their strategic default might have on their neighbor’s home prices and the quality of their community in general.

The only barrier that remains is the tough financial punishment that defaulting on a home loan brings. The result is that the defaulting borrower won’t be able to borrow money for quite some time except at very high interest rates. With the consumer credit markets remaining tight, one who does a strategic default on a mortgage may find it impossible to get a loan at any reasonable interest rate.

What does it mean financially if you do strategically default?

Basically, it means that if you carry out a strategic default you’ll be living on a cash basis for many years to come. Any consumer products you want, you’ll pay cash for them. If you buy a car, you’ll have to pay cash for it. And you probably won’t be able to qualify for a home loan for at least 10 years, maybe longer depending on what happens in the credit markets.

The bottom line is that you’ll have to maintain a strict financial life after you default. This kind of frugal, disciplined, lifestyle may be difficult for someone who’s been on a credit binge for years. Operating your household on a strict cash basis doesn’t come naturally for many people but it is possible if you commit yourself to it. In fact, I recommend it even if you don’t plan to do a strategic default. You’ll find yourself in much better financial shape if you do.

Should you do a strategic default on your mortgage?

A lot of people are asking themselves this question since around 15 million homes have mortgages that are upside down and nearly 5 million mortgages are facing foreclosure or are behind 2 or more months. Some estimates calculate that about 1/4 of these troubled mortgages are held by someone who may be in or considering a strategic default.

Such a default isn’t easy. It requires some tough choices and tough lifestyle changes. It requires balancing your civic responsibility to your community against your own financial well-being. It means determining if your personal integrity means that you should keep your promise to the mortgage lender. It means preparing yourself and your family to shun credit and live on cash only. These are questions that you’ll need to consider before committing to a strategic default on a mortgage.

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By using information found on the Internet you can find advice about foreclosure laws in your state. You can also find out what your homeowner rights are. Most states in the US have an official website that will provide you with much of this information. I suggest that you start by performing  search on that site for information on foreclosures as they relate to your particular situation.  There you should find information on foreclosure laws in your state of residence along with detailed information on the legal process works in this case.  This information may also be available from other sources online. However, you know the information is accurate and up-to-date when you get it directly from the original source.

Another online resource that you may want to investigate is that of foreclosure attorneys or of lawyers who specialize in real estate law.  Many lawyers will provide important and timely foreclosure information on their websites. Most of them make this information available to you for free.  For example, a current search of foreclosure attorneys will tell you that in some states foreclosure can be stopped right in its tracks when bankruptcy is declared.  Although not all attorneys are willing to divulge all of their secrets, you may be surprised how much information you can find online from websites that belong to lawyers.

The Internet can also be used to help you find the right foreclosure attorney to hire in your case.  As I mentioned earlier, people who are facing foreclosure probably have limited financial resources and may find it cost prohibitive to hire a lawyer.  Fortunately, there are ways around this lack of money.  Some lawyers will accept cases pro bono, meaning for free, while others will work out a payment agreement for legal services with you.  You should hire an attorney if you should do so if you fall victim to a foreclosure scam or if you believe that your lender is treating you unfairly and illegally.  You should make sure that any lawyer you hire specializes in real estate and foreclosures.

Credit counseling websites are another online resource that’s available to you.  This can be a controversial approach, and there may be some risk involved, but help may be available to you.  Some credit counseling companies may try to work with your mortgage lender. In the best case scenario, this may result in you getting more affordable monthly mortgage payments.  With that in mind, there are many scams out there that surround these companies. That includes those that even claim to be non-profit organizations.  For that reason, do some research online first, including checking with the Better Business Bureau.

The website for the United States Department of Housing and Urban Development (HUD) should be visited as well.  This website can be found at HUD.gov. On that site you will see a lot of information that is from an accurate and reliable source. You can use their information to find out your options before, during, and after foreclosure. You can discover if your particular mortgage is covered by a government sponsored mortgage modification plan. You can also find out how to get in touch with a HUD approved housing counselor.

Another online resource are websites that are operated by individuals, such as myself, who’ve had personal experience in dealing with foreclosures during economic hard times.  These websites can be provide you with valuable resources as well as support for your situation.

I hope that you have found this basic advice about home loan foreclosure helpful to you.

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When it comes down to it,  banks made it far too easy during the past few years for homeowners to take money out of their homes with home equity loans and subprime mortgage refinancing.  This was OK as long as the economy was OK and property values kept rising. Unfortunately this was an economic bubble and resulted in the fall we’re seeing now. Now home values are plunging and many homeowners now have inflated mortgages and home equity loans paired with an under valued home. The truly unfortunate part of this situation is that many homeowners can no longer afford their mortgage payment.  These people are facing the very real possibility of forclosure. For them, losing their family home is a very real threat.

Fortunately, the good news is that many banks that made these questionable loans have begun to  realize the economic realities of the current economic recession and are now giving homeowners several options to solve their mutual problem with bad home loans.

Obviously, the best solution would be to catch up your mortgage and then to make your home loan payments on the agreed upon schedule.  Sometimes banks will allow deferrals, make-up payments and other programs to allow you to get caught up and these are on a case-by-case basis. There are also possible state and federal programs that may allow you and your bank to ease into a home loan solution that fits your particular needs. You will need to check with your bank to discover what these options may be in your individual situation. Just remember that the mortgage company is not the enemy, they want a win-win situation if at all possible. They are willing to help you out in most cases although you may have to talk to several people until you find someone in the right department to work with you on your situation.

In some cases, banks will renegotiate a home loan. Some banks are more inclined to do this than others so you will need to check with the past due loan or the loss prevention department at the bank. Always stay in communication with the bank so that you will be in a good position to take advantage of home loan modifications that may be available to you. On the flip side, some banks won’t negotiate for various reasons so be prepared for other options if this won’t work for you.

One option that is being offered by home loan banks is called a short sale. In this scenario the bank permits you to sell your home at or below the current market value. This allows the home to sell quickly, regardless of what is owed on the home loan.  For example, let’s say that your mortgage is $480,000, but currently comparable  homes in your area are selling for $390,000. If the bank permits you to do so, you can accept an offer for $390,000. It is possible that you could take even lower bids. In turn, the bank will take a loss on the sale of the home because the sale will not cover the full mortgage loan amount, but the bank will not be stuck with a home they don’t want in their inventory.  So far as the homeowner goes, in most cases they will be able to simply walk away after the sale and be free and clear of the original home loan.

To effect the short sale of your home, I suggest that you engage the services of a professional real estate agent who is knowledgeable about short sales and has had some experience and success with these kinds of sales. It is in your best interest to bring in a professional to help you with this because they will know proper way to handle the paperwork involved and other details. Also, since they won’t be emotionally involved in the sale they can offer a practical view of the situation to all parties involved.  Remember that in most cases that the bank that holds the home loan will end up paying the realtor fees.

There are disadvantages to a short sale. Yes, your credit score will suffer although it will not be as bad as it would be with a foreclosure of bankruptcy.  It has been estimated that your FICO score can drop 100 points with a short sale.  But compare this to drop of over 200 points with a foreclosure or bankruptcy. Also, with a short sale, you will not be able to buy a new home for at least 2 years. For a foreclosure or bankruptcy this can be at least 3 years if not much longer.

Bankruptcy is the final solution that might allow you to stay in your home. You will still need to catch up payments and stay current on your payments if you do a Chapter 13 bankruptcy. This will damage your credit but you won’t lose your home if you are able to make your payments.

Lastly, there is foreclosure. Sometimes this will happen in spite of your best efforts to avoid it. Should this happen to you be prepared for some struggles but stay strong and avoid taking on any new debt for several years. Save your money and, with any luck and the passage of a few years of time, you will be able to find a new home to purchase. Just don’t make the same mistakes again.

I hope this article has helped you with your questions about foreclosure prevention.

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Current economic conditions have many people finding it difficult to hang on to their home since both their household income and home value have declined. Others, who bought at the peak of the real estate boom, have ended up owing a lot more than their houses is actually worth. Therefore, it’s no surprise that people just want out of bad circumstances. But, just walking away is a terrible choice and one that could cause regret and stress for many years to come. Let’s look into why this is the case.

You may assume that if you just walk away from your home and let foreclosure happen that you will be free and clear. Unfortunately, this isn’t the case.

In most states, the bank can sue you and get a deficiency judgment. This is the difference between what you owed on the house and what the mortgage lender made from the house when they sold it. Naturally, it is quite rare for a foreclosure sale to pay off the total amount owed on a mortgage loan. This may leave a former homeowner with a deficiency of $10,000 or more. In areas where home prices were very inflated it’s not unusual to see deficiencies of more than $100,000. Some states also allow for punitive damages as well under some circumstances.

Once a deficiency judgment is entered the lender can seek to garnish wages and seize or place liens on personal property and bank accounts. Some states, such as Florida, give lenders a lot of power. Others, such as California, are nonrecourse states where laws restrict the ability of mortgage lenders to obtain judgments against borrowers. Exactly what they can do will vary from state to state and from mortgage loan contract to contract so it’s best to consult an attorney if you need to know the exact implications in your case.

Also, foreclosure will destroy your credit score for up to 10 years. Typically a foreclosure being filed will drop a borrower’s credit score by 100 points and it will drop another 100 points when the foreclosure sale takes place. This can make it difficult for you to get credit for important things such as renting a place to stay or purchasing a car. It can even affect your ability to get a job.

If you’re in a position where you know you cannot afford to stay in your current home you need to be proactive. Many banks are willing to work with a cooperative borrower when it is clear that there’s no hope of them continuing to pay the mortgage. Just bear in mind that lenders will have to be convinced that you’ve tried every reasonable possibility to keep your home first. There are also government programs and HUD approved housing counselors that can help you seek foreclosure alternatives such as a short sale or deed in lieu of foreclosure. While these alternatives will cause a drop in your credit score they’re no where near as devastating as a foreclosure. Plus, most lenders will choose to not pursue a deficiency judgment if an agreement is worked out beforehand.

If saving your home is proving impossible, get expert mortgage loan and foreclosure alternative advice from a local attorney, credit counselor or HUD approved housing counselor. They can help you navigate the laws that apply to your loan and help you discover the best foreclosure alternative for your particular situation.

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