If you are unable to maintain ownership of your home, there are several alternatives to foreclosure that can help protect your credit score.
PRE-FORECLOSURE OR SHORT SALE
A short sale involves selling your property at less than fair market value before the foreclosure sale. In some cases, fair market value may be less than what is owed on the home so prior approval from the investor will be required. The homeowner may also be required to make a cash payment toward any loss the investor may have incurred and agree to comply with other additional requirements by the lender/investor.
DEED IN LIEU OF FORECLOSURE
This involves signing the deed over to the investor prior to a foreclosure sale. This alternative is only granted as a last resort, and usually only in cases that involve the death of the mortgagor and/or after an unsuccessful attempt to sell the property at fair market value has been made.
Proof will be required that the property was marketed for a period of time at fair market value and in cases of death, a copy of the Death Certificate will be required.
A DEED IN LIEU OF FORECLOSURE requires prior approval of the investor and clear title to the property. A cash payment to the investor may be required as well as compliance with any additional requirements made by the investor/lender.
FOR FHA HOMEOWNERS
Homeowners who have their loans insured by FHA may qualify for a SPECIAL PROVISION TYPE I CAUSE OF DEFAULT – UNEMPLOYMENT option. This option is for the mortgagor who is in danger of foreclosure because they have lost their job and have no prospects for future employment, but who had maintained a good payment history and stable employment history up until the time they lost their job.
In this case, FHA will place the homeowner’s payments on hold for up to six months.
To qualify, the homeowner must agree to:
- Make partial payments, if financially able
- Agree to actively seek employment
- Immediately notify their lender when employment status changes
