Avoid Foreclosure: Sell Your Home In A Short Sale Or Deed In Lieu
If you are currently facing a foreclosure, you might be able to avoid this going on your record by leaving your home and selling it fast. This is done either with a short sale or a deed in lieu. Of course, both of these options have their own pros and cons, so you will need to decide if either of them is a good choice. However, if you can't afford to stay in your home, there is no reason you should hold onto it and wait for foreclosure to happen. Here is more information on these alternative options.
Short Sale
The first option you have for selling your home and avoiding foreclosure is by opting for a short sale. With a short sale, you are able to sell your home for a price that is lower than what you currently owe the lender. You will need to first get permission from the lender and be sure you don't get sued for the deficiency of payments. If you live in a state that allows deficiencies, you will owe the difference even after the home is sold. In order to benefit from a short sale, you must first be sure you won't have to pay the difference. Some lenders are willing to waive it as they also don't want to go through a lawsuit or bankruptcy process. You won't have a bankruptcy on your record, but short sales may still go on your record.
This is not usually an option if you have a second or third mortgage on your home. Each lender would have to agree to the short sale, and it is rarely approved by them. You may also have some tax consequences, so that is another drawback to be aware of. You are technically getting proceeds from the short sale, so you might owe money to the IRS the following year.
Deed in Lieu
Your other option is to get a deed in lieu, which is a deed that says you are giving your home back to the lender in order for them to cancel the loan. The lender can then sell the home to pay the remainder of the loan you owe so you can avoid foreclosure. When you get a deed in lieu, the lender will sign a contract that promises they will not move forward with the foreclosure, and that anything they have started previously, will be terminated. They must agree to it in writing and that any deficiency will be forgiven once ethe house is sold. You may be required to first put your home on the market for a period of time and try to sell it on your own, before turning it over to them to sell.
A deed in lieu may look a little better on your credit report than a short sale, and not affect your credit rating as much. This is a big plus since your credit rating is needed for any lines of credits or loans you need in the future. It also lets you avoid having a bankruptcy on your record. The downside is that the deed in lieu is more difficult to obtain than a short sale, and harder to convince the lender to accept.
Regardless of which way you go, make sure you hire a good real estate lawyer. They can walk you through the steps of selling your home for as much as possible to avoid a deficiency and get it sold quickly so you can avoid bankruptcy.