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Short Sale Or Deed In Lieu Of Foreclosure -
What To Do When You Owe More Than Your House Is Worth?
By
Richard Geller
If you owe
more than your house is worth, what are your
options? One is that you can keep your home
and continue making payments.
Eventually inflation will increase the value
of real estate and you should be okay. This
may take five, ten or fifteen years but it
will happen. More inflation is pretty much
guaranteed. Of course, one can question the
wisdom of paying every month on an asset
that is falling in value and that is not
worth what you are paying.
There is an ethical and moral issue here. I
won't touch that one because you have to do
what you are personally comfortable with. My
job is to give you some options, and let you
decide what you want to explore further.
Because many homeowners face further
complications. They cannot afford their
existing mortgage. They may have an ARM that
is resetting. Or a balloon payment that
means a mortgage must be refinanced. But in
today's market that may be impossible.
For people who cannot afford their monthly
payments and cannot refinance, and who owe
more than their house is worth, a short sale
may be the answer. More about short sales in
a moment. Deed in lieu seems preferable. In
deed in lieu, you deed your house to your
mortgage lender and that ends the
foreclosure process. What could be simpler
and more obvious?
But hold on.
The lender may still go after you in court
for their financial losses. And they often
report deed in lieu on your credit report
like a foreclosure. Sometimes you can
negotiate this. But the simple fact is that
lenders do not like doing deed in lieu of
foreclosure, especially if you owe more than
your house is worth. You have to realize
that you think you have a problem (and you
do), but your lender has a problem also.
And deed in lieu does not solve your home
loan lender's problem. They are not in the
business of owning houses. If they accept a
deed in lieu they must fix up your house and
market it and sell it. That is a problem for
them. It costs them many tens of thousands
of dollars in additional losses. You can
solve that problem for them by doing a short
sale. You sell the property to a buyer and
the lender agrees to accept the proceeds
that the buyer pays as full payment of the
mortgage loan.
The mortgage lender may still come after you
for their financial loss, unless you get
them to agree otherwise. And the lender may
make a bad report about you to the credit
bureaus -- or they may not. You can
negotiate all this. With short sales in lieu
of foreclosure you are fixing the problem
for yourself and for the mortgage company.
They may take a loss but at least they get
out of a non-performing loan. You get out
from under and you can even buy another
house with little or no money down and bad
credit, if you know how to.
It is the best of all worlds given a tough
situation.
Conclusion
Are you one
of the many that suffer from insurmountable
debt and wonder if bankruptcy is an option?
Give us a call at (203) 924-6700 or
contact us.
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