Foreclosures, Short Sales and other options for troubled Mortgages

Do you ever wonder about how the foreclosure system works? If someone is in trouble - when do they start looking for help? Are there options for people? These are great questions. Let's talk about it a bit.

When someone starts having some real problems paying their bills - either from a job loss or medical bills, or whatever change has occured - the rates go up - when the problem becomes evident - that is when help is needed. A homeowner can do several things. First they need to decide though if they want to stay in the house or move out.

If the homeowner wants to stay in the house, there are options the bank may be willing to work out. Forebearance is when the bank is willing to suspend the payment for a short period of time. This would be in the event that the financial diffficulty is temporary. A mortgage modification is where the lender would be willing to modify the payment or terms of the loan to make the mortgage repayment possible.

If the homeowner doesn't want to stay in the house, they can sell it. Maybe the house is worth the loan amount and the loan can be paid and the seller move on with no negative effect to the credit report. If the house is worth less than the loan amount, the bank may be willing to discuss doing a short sale. A short sale is where the bank would be willing to cooperate with the seller to sell the house at market value, but below the loan amount. In these cases the banks forgive the rest of the debt. They will only do a short sale if the homeowner is in a complete financial hardship. And there are a lot of details and challenges in a short sale.

Who should a homeowner talk to?

Their bank. Which may be helpful. Or not. But it is a good place to start. It depends on, well, lots of things.

Their Realtor. Which may be helpful. Or not. It depends on if they know anything about short sales and foreclosures. Selling a house in this environment has special challenges that go with it and working with a Realtor who doesn't understand it can ruin the opportunity. To sell a house in a foreclosure environment needs to be done in a timely and committed manner. Make sure to work with a trained real estate consultant. If this agent is well informed, they can help a homeowner walk through a challenging decision making process.

Getting help is the best idea.