Despite the economic recovery and the resurgence of the real estate market, there are still numerous homeowners out there still struggling to pay their mortgage. According to RealtyTrac, August foreclosure starts numbered around 56,000. This is down 34% from last year but still high enough to draw attention, especially for those young families who have just received their foreclosure notice. Knowing the options to get rid of a delinquent property is very important to homeowners in order to avoid payment of additional fees and to tax consequences to a minimum. Here are a few of the home forfeiture terms you should get to know.
Deed in Lieu of Foreclosure — This process allows the homeowner to return their mortgage back to their lender in exchange for a forgiveness of the remaining amount owed. The upsides to this process are the request’s relative painlessness, save for numerous signatures and notaries needed, and not paying what remains on the property.
The downside is threefold. First, unless the homeowner makes an agreement with the lender, they need to vacate their residence once the deed in lieu of foreclosure goes through. Second, tax implications can be huge if the lender decides to send you a tax form at the end of the year. Third, deed in lieu of foreclosure puts a mark in a homeowner’s credit score that can last for several years.
Foreclosure — Foreclosure is taken by the lender when all other options, including refinancing and loan modification, are exhausted. How long the foreclosure process takes depends on the mortgage lender and the processing time. A recent report from UPI says the average time to process a foreclosure request in the U.S. is 477 days. However, this could be much less depending on the state.
Completion of the foreclosure process involves vacating the residence followed by an auction to sell off the property. In the end, the homeowner may still have to pay money to the lender if the amount of the sale doesn’t match what is owed on the mortgage. In addition, a foreclosure remains on the homeowner’s credit score for seven years.
Short Sale — Along with deed in lieu of foreclosure, this is one of the least painful options to get rid of a home where the mortgage can no longer be paid. Instead of an auction to pay for the property, the lender sells the home for less than its value in order to pay off as much of the balance as possible. In some cases the remaining amount of money owed is forgiven by the lender, while other scenarios have the homeowner working out a deal to pay the remaining amount. The only good news about a short sale is it may not make as large an impact on a homeowner’s credit score as a foreclosure. Discussion with a credit advisor may be needed to find out the circumstances.