1 Short Sale
A short sale allows the homeowner to avoid foreclosure,
minimize financial damage and move on from a
burdensome, unaffordable mortgage. In many cases,
a short sale allows the borrower to qualify for a new
mortgage in just 24 months, as opposed to five years or
more after a foreclosure.
A trained real estate agent can negotiate a short sale
with your lender if you have three qualifications. First, you
must show some type of financial hardship. Second, you
must have a monthly shortfall, meaning your monthly
expenses are greater than your monthly income. Finally,
you need to prove that your debts are greater than the
value of your assets (certain investments, property, etc.).
A reinstatement is the simplest solution for a foreclosure,
however it is often the most difficult for homeowners
to achieve. The homeowner simply pays the total
amount past due (including late fees) to the lender.
This solution does not require the lender’s approval and
will “reinstate” a mortgage up to the day before the
3 Forbearance or Repayment Plan
A forbearance or repayment plan involves negotiating
with the mortgage company to allow the homeower
to repay back-payments over a period of time.
The homeowner typically makes current mortgage
payments in addition to a portion of the back-payments
owed. This option requires lender approval.
4 Mortgage Modification
A mortgage modification involves the reduction of
one of the following: the interest rate on the loan, the
principal balance of the loan, the term of the loan, or
any combination of these. These changes require lender
approval and typically result in a lower payment for the
homeowner and a more affordable mortgage.
5 Rent the Property
This option does not require lender approval, but does
require the homeowner’s ability to rent the house
for enough money to cover the monthly mortgage
It is important to remember that there may be
unexpected costs associated with the maintenance
of a rental property in addition to the monthly
mortgage payments. Homeowners should take this into
consideration when deciding whether this option will work
6 Deed-in-Lieu of Foreclosure
Also known as a “friendly foreclosure,” a deed-in-lieu
allows the homeowner to return the property to the
lender rather than go through the foreclosure process.
Lender approval is required for this option, and the
homeowner must also vacate the property. Deed-in-lieu
can potentially lessen the damage to a credit score
and future loan eligibility, and sometimes the lender
will forgo their right to pursue a deficiency judgment,
meaning the homeowner will not be responsible for
Many have considered and marketed bankruptcy as a
“foreclosure solution,” but this is only true in some states
and situations. This does not require lender approval,
but you must have non-mortgage debts that you claim
as a hardship.
Entering bankruptcy can be a risky and costly process.
Be sure to seek the advice of a qualified bankruptcy
attorney when pursuing this as an option.
As opposed to mortgage modification, refinancing
means you will be acquiring a new loan based on your
current credit standing. If you have already missed
mortgage payments, your credit score may make it
difficult to find a loan with cheaper payments.
9 Servicemembers Civil Relief Act
(military personnel only)
If a member of the military is experiencing financial
distress due to deployment—and that person can show
that the debt was entered into prior to deployment—he
or she may qualify for relief under the Servicemembers
Civil Relief Act. The American Bar Association has a
network of attorneys that will work with servicemembers
to help qualify them for this relief.
10 Sell the Property
Homeowners with sufficient equity can list their property
with a qualified agent who understands the foreclosure
process in their area. Unfortunately, many homeowners
in today’s market have experienced a decline in home
value and may owe more than what the home is worth.