There have been an unprecedented number of home foreclosures due to the recession and dip in housing values. Despite this trend, there is much better alternative that allows you to get out from under your mortgage burden without going through foreclosure. One of these alternatives is a short sale, meaning you sell your home for less than it is currently worth. The first step in avoiding foreclosure is to contact your mortgage lender as soon as you realize that you are struggling to pay the mortgage. It is in the bank’s best interests, as well as yours, to avoid foreclosure. For many of us, this initial step is the most difficult. It is often easier to ignore the problem and hope it disappears. In a majority of foreclosures, the homeowner never makes contact with the lender, foregoing other opportunities that might help your situation. After you have notified the bank that you may need to short sell your home, they will send you a packet of information. Completing this packet prior to listing your home will make for a smoother process down the road.
Another important step in avoiding foreclosure is to retain occupancy of your home. If you have abandoned or rented the home, your lender may be less willing to accept a short sale or deem you not eligible for a short sale.
There are huge differences between a foreclosed property and one that is a short sale in terms of process and consequences. A foreclosure is a court proceeding in which your lender seizes or takes back the property. A foreclosure greatly impacts your credit score, which affects your financial viability in the future. A foreclosure can lower credit scores by as much as 300 points and may prohibit you from purchasing another home from 3 to 7 years. Credit scores are also used by many companies in screening job applicants. Low credit scores can impact what you spend on everything from insurance to credit card rates. While there is also a credit impact with a short sale, it is much less than that of a foreclosure. With a short sale, many sellers are eligible to buy another home within two years and do not experience such a severe credit drop. The process is also much different with a short sale because it is not a legal proceeding but a selling of the home in the regular market place with Realtor representation. The short sale process is a cooperative rather than adversarial experience between the seller and lender.