Teaching Foreclosure Prevention Workshops we often get this question and no one answer is right for everyone.  Each situation is as unique as we are.  Typically homeowners want to keep their homes.  However, when keeping their home is not an option, and the homeowner needs to dispose of the property.  

The first question for the homeowner is what type of foreclosure is used in their state or the state the property is located in?  For example in California the lenders foreclosure by Deed of Trust, also called a Non-Judicial foreclosure.  In Florida lenders often use Judicial Foreclosures, and typically issue a deficiency judgement against the homeowner.  If a deficiency judgement is issued, often the homeowners in our workshops say, "well I have no assets so I am safe"  Perhaps there are no assets today, but what about the future? A homeowner would want to check the Statute of Limitations for their state or the state the foreclosure will take place.  If the Statute of limitations is 10 years, well things might change for the homeowner so it is something to consider because the lender or "collector" at that point might have a judgement and be able to place liens on assets.  Thanks to the internet!!!  The lenders are more likely to use Non-Judicial foreclosures.  Foreclosure by 'Deed of Trust' because homeowners can now use the internet to find the document that needs to be filed to 'slow' a foreclosure process, which often will push the process out by two years. 

Deed in Lieu of Foreclosure are very difficult to get.  If there are two loans on the property, or PMI then a Deed in Lieu is not an option.  If the loan is a recourse loan a Deed in Lieu is very unlikely.   Often lenders will want to see some sort of effort make towards a short sale before considering a Deed in Lieu.

In order to avoid a foreclosure, another option is a short sale.

For Homeowners, Realtors and Short Sale Specialists, here is what we suggest for a Smooth Short Sale.  

How a professional negotiates the Short Sale is knowing that a Foreclosure is going to harm the lender more than the borrower.  Leverage the Short Sale, by showing the bank that they are going to loose more money with a Foreclosure than they will by accepting a short sale. Build a case to the bank to prove they have no recourse or very little recourse against the homeowner now or in the future.

Let's say for example that there is one loan on the property which was a purchase loan and the property is in California.  This is the most simple type of short sale.  The lender does not have as much leverage against the homeowner.  Therefore, often the lender is willing to take a 'haircut' and write down the loss and allow a short sale. The lender will want the homeowner to 'participate' in the loss by taking a credit hit of 80 points and a negative item listed on the credit report.  The homeowner will also be issued a 1099C for a Short Sale.  

When a Realtor and Short Sale Specialist work together a short sale is a smooth transaction, here's how.  The realtor markets the property and spends all their time getting qualified written offers.  The Short Sale Specialist, work on the lender negotiating debt and credit.  In the end, the realtor, short sale specialist and realtor for the buyer all have to split the commissions.  However, these short sales go through in 30-45 days!  We find that it's a win-win for all parties.  When short sales take 8-9 months that is too long and too frustrating and often the property forecloses when there are offers because it takes a team to work a bank!

When the loans are refinanced loans (recourse loans) and the lender might foreclosure using a Judicial Foreclosure (deficiency judgement) all the more reason to have both a realtor and short sale specialist to work the bank on behalf of the homeowner.  Bottom line, this strategy is most efficient.  

30 days after a Short Sale, a homeowner will want to consider credit restoration in effort to begin to repair and rebuild their credit rating.  For more information on credit repair please call 1-877-747-4386!