I am going to keep this one short and sweet. Starting with the worst option for the homeowner to what I feel is the best assuming the homeowner is in a financial hardship.
1. Allow the home to be foreclosed (The absolute worst).
2. Deed in lieu of foreclosure (ask for a release in the deficiency owed).
3. Short Sale.
4. Loan modification.
I highly encourage a homeowner to seek the professional advice of an experienced attorney, Realtor, and current lender before proceeding with any of the above. Each option has its own challenges and the right professionals can help a homeowner navigate the choppy waters.
1.Keep the property and live in it.
2.Keep the property and rent it out.
3.Sell the property and pay the bank the difference.
4.Deed in lieu.
These are listed in order of best to worst.
Seems the best questions always come from you :-)
My colleagues have outlined briefly a few of the options for property owners who are "under water," that is, owe more in a mortgage than the market value of the property. I think it's important to take a somewhat broader perspective, though, when dealing with a client in an equity-negative circumstance.
More than anything else, we need to understand the specifics of a particular client's financial situation in order to suggest appropriate action. Many people think they have no alternatives to foreclosure or a short sale when in fact there may be more than one.
The details of the client's circumstances are key to determining the options. For example:
--Does the client want to stay in the property? (Some clients don't want to stay, only to be relieved of the burden. Others want to stay for reasons other than financial, such as school districts, proximity to family or work, etc.)
--Is the client currently employed or have other sources of income? (Lenders will do a modification, if there is a high likelihood that the borrower could afford the new monthly payment)
--What circumstances caused the client's financial distress (Lenders may give a forbearance - a temporary halt in the obligation to make payments - if the client experienced unexpected costs like medical expenses)
--Does the client have an alternative place to live? (Under the terms of a short sale or sale as a result of foreclosure, the client may have to leave in a short period of time. Some lenders will provide relocation assistance to eliminate the need for a Sheriff's eviction.)
We have to be careful in making suggestions to clients who have financial distress. A good broker works with a client to find the best alternative --- whether or not the broker earns a commission!
A great place to find accurate and comprehensive information about alternatives is the Making Home Affordable page of the Departments of the Treasury & Housing and Urban Development. See http://www.makinghomeaffordable.gov/Pages/default.aspx for details on borrower's rights and options under the current federal law, extended to the end of 2013.
The site contains information about all of the options mentioned by my colleagues. Borrowers can learn about their eligibility for a short sale, forbearance, refinance at a lower interest rate, or even principal reduction.
I highly recommend that brokers start by reviewing this information with their distressed clients to help them determine the best course of action. It's a sure way to gain their trust -- and hopefully a future transaction or referral.
Don Pasek, CIPS, TRC, ADPR
Omniterra Real Properties
You can attempt a loan modification if your intentions are to keep the property. If you are looking for a quick exit then you can try a deed in lieu of foreclosure. If you would like to know the details behind all the options available feel free to call me at 773-628-7608. Either way there are options so don't give up! Good luck.