Avoid Foreclosure Fumble

It’s not a subject that most of us want to think about. But hundreds of thousands of people are living in fear of a foreclosure fumble.

As a real estate writer, I find this a painful subject to write about. However, it’s one that needs to continuously be addressed because so many are living in a worried state. The thought of losing your home can send a million different emotions racing through your brain. This is when you need to slow down, go to a quiet place, and carefully think through your options. Yes, options. You do have them.

First, even before you call the lender, look at your financial situation. How far behind are you in your payments? What can you do to reduce your spending? Can you sell a car? Can you sell items of value in your home? Can you get money from outside unexpected sources? For instance, some companies are offering low-interest loans to their employees to help them through the tough times. Can you rent out a room? Can you rent out the entire house?

The idea here is to brainstorm for viable solutions that won’t have you simply walking away from your home. A foreclosure is a devastating mark on your credit despite what some newly-emerged companies might say. Typically these companies also will tell desperate homeowners that they can help them out of their financial woes for a fee. Not all but some unsavory companies then take the money and run without even providing any help or ever contacting the homeowner’s lender to negotiate a settlement.

Here is an option if you need to get out. Try a short sale. Selling your home to a third-party for less than the amount owed is an option. The lender must agree to the sale and typically forgives/cancels any remaining debt not paid by the new buyer. This can be a good alternative to a foreclosure. However, you should know that there is a chance you will face a Deficiency Judgment (and taxes) later on. The IRS looks at the debt that the lender forgave as income to you! Therefore it’s taxable.

If you are considering a short sale, consult tax experts, experienced Realtors, and lawyers to ensure you understand the process and how you will be affected financially.

The Mortgage Forgiveness Debt Relief Act may also be of help to you. Read more about it on the Federal Housing Administration site. http://www.irs.gov/individuals/article/0,,id=179414,00.html