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Facing Foreclosure? Alternatives That Can Save Your Credit

Sherry Ciurzcak - Jan 2009

Are you facing foreclosure on your home? If so, you're not alone. Home foreclosures are soaring in the US. According to a January 2009 RealtyTrac report, 2008 showed an 81% increase in foreclosure filings over 2007. None of us want to become a part of those statistics. You may think there's not much you can do to avoid foreclosure, but in many cases, there are alternatives.

Reorganize Finances and Priorities

When you're facing foreclosure, it's tempting to think there's nothing you can do about it, so you don't bother changing your spending habits. But now is the time to take a hard look at your finances and priorities. There are almost always ways to save a little money—such as shopping at discount grocery stores, carpooling, and eating at home instead of at restaurants. Even though you may save only a little at a time, it adds up. Thrifty habits can put you on the road to financial recovery—and may help you save your home or credit rating.

Reduce Your Mortgage Obligation

There are generally two ways you can approach this: You can negotiate with your lender or you can file for bankruptcy. In times of soaring foreclosures and sluggish housing markets, your lender may be willing to make a deal that keeps you in your home. If you file for bankruptcy, you may be able to obtain important protections and reduce your debt—including your mortgage—by a significant amount.

Consider a Short Sale

In some cases, your lender's risk department may discount your loan balance via a short sale, allowing you to walk away from an unaffordable home without a foreclosure on your credit history. A short sale involves selling the property for less than your outstanding mortgage balance and turning the proceeds from the sale over to the lender, satisfying your debt by mutual agreement. Be aware, however, that there may be tax consequences, as the amount of debt not covered by the sale can be taxed as income. It's wise to consult with a tax professional before making a decision.

Be Proactive

Some who are facing foreclosure simply avoid thinking about a difficult issue. Others believe they are powerless to stop it. But if you are in this situation, it's best to be proactive. Think about these foreclosure alternatives and whether any of them might work for you. Talk to a tax professional and a real estate lawyer before you commit to a course of action. A foreclosure alternative may help you protect your credit—and your peace of mind.

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Comments

Submitted by sean on Jul 19, 2010 - 1:06PM

i am a co-signer on a home mortgage loan, the friend i co-signed for has apparently defaulted without telling me anything and last week friday i was served foreclosure papers. i dont live there and have only been there once. she told me that she was filing chapter 7 and i read some information online and it said if the homeowner was to file chapter 13 i would be protected from the bank coming after me but since she is not depending on the amount owed after all is said & done they might come after me. should i wait until then then file chapter 7 as well, or do so now since my credit is already ruined and to try and get the 10 years of bad ratings over sooner than later? i have no bad accounts on my own and would only be doing a bankruptcy because of this foolish co-signing thing i did?

Submitted by LegalZoom Suzanne S. on Jul 30, 2010 - 1:33PM

Hey Sean, thanks for your question. We are really sorry to hear about the situation you're facing right now, but our specialty is legal documents, not legal advice. We can help you find a lawyer to answer your questions, though. Check out our attorney referral network: http://attorneyconnect.legalzoom.com

Submitted by Anonymous on Jun 20, 2011 - 6:51AM

I am about 23 months behind monthly mortgage payments about $1,537 per month about $36-$38k please provide some advise Bank of America looking at options with a possible modification not a guarantee they said so i want to be prepared in worst case scenerio.

Submitted by LegalZoom Saman... on Jul 12, 2011 - 1:27PM

Hi, thanks for contacting LegalZoom, and we are sorry to hear about this situation. LegalZoom makes creating legal documents easy and affordable, but we unfortunately can't give specific legal advice regarding loan modification. However, you can get free legal advice on the LegalZoom Facebook page every Friday. Check out Free Joe Friday: http://zoo.mn/FreeJoe.

Submitted by Chris on Aug 26, 2010 - 10:14AM

I am in the process of a short sale due to a divorce. I am current on my payments and have excellent credit. The bank wants me to pay them $15K so they can approve the short sale.

I told them I would agree to pay the $15K if they notified the 3 credit bureaus that the loan was "Settled."

I want to purchase another home but I am getting mixed info that I can purchase a home since I stayed current and my credit is good, but I am also being told that I would not be able to purchase a home for 2 to 3 years with a short sale on my credit report.

Is that true?

Chris

Submitted by melissa on Oct 7, 2010 - 8:16PM

I am now 5 months late on my 1st and 2nd mortgage and am upside down, I tried for modification and was denied. Now I'm faced with foreclosure. Wondering what options I have. I've wondering if short sale or deed of lieu would be the only option. What would be the best? and will I have to owe the difference.

Submitted by LegalZoom Nina F. on Nov 3, 2010 - 9:09AM

Thanks for your inquiry. LegalZoom makes creating legal documents easy and affordable, but we can't give specific legal advice about foreclosures. If you want help finding an attorney, try our attorney referral network: http://attorneyconnect.legalzoom.com

Submitted by Anonymous on Oct 14, 2010 - 3:25PM

My brother died without a will and now the bank that holds his mortgage is coming after his siblings for the debt and proceeding with foreclosure. We are not able to pay and don't want this house, the debt or to ruin our credit. Are there forms to say we have no such interest and what happens to our credit?

V

Submitted by LegalZoom Nina F. on Nov 3, 2010 - 9:21AM

Hello, we are sorry to hear of your loss and extend our deepest condolences. Unfortunately, LegalZoom does not offer the documents you are seeking, nor can we offer any legal advice regarding this matter. However, we'd be glad to connect you with an attorney that may be able to assist you. Please visit http://attorneyconnect.legalzoom.com to search for an affordable attorney to advise you.

Submitted by George Butler on Dec 8, 2010 - 8:53AM

I want to foreclose on a trust deed that I own. The person is 3 months in default and told me she has no intention of making any more payments. The property is in Sacramento, Calif. Do you have the papers that I can fill out and file
here in California?

Thanks George Butler

Submitted by Phil on Mar 29, 2011 - 4:34PM

Can I use LegalZoom to bring a lawsuit against my mortgage lender? I don't have the money for an attorney and am losing my house. Maybe this "mass joinder" thing will work but those attorneys also have high fees. Loan Mod, short sale, and refi have all been denied, and I do not qualify for bankruptcy.

Submitted by LegalZoom Nina F. on Apr 22, 2011 - 4:04PM

Hi Phil, thanks for your question. Unfortunately, at this time LegalZoom does not offer lawsuit services to assist you. However, we can connect you with an attorney that can give you legal guidance regarding this matter. If you want help finding an attorney, try our attorney services: http://attorneyconnect.legalzoom.com

Submitted by MWU on Apr 15, 2011 - 9:51PM

I am thinking of putting my rental property inside an LLC. I have not set the LLC up yet, but just want to know what paperwork/process is needed to move the property to the LLC, and if Legalzoom provide such service in addition to setting up the LLC.

Submitted by LegalZoom on Apr 20, 2011 - 1:38PM

Thank you for contacting LegalZoom for your online business needs. We can assist you to establish an LLC (Limited Liability Company) in your state as well as have a separate procedure to transfer the property itself into the LLC. Keep in mind the transfer of property would occur after the formation of the LLC itself.

LegalZoom can assist you to establish the LLC by filing the necessary documentation with the Secretary of State’s office on your behalf. Keep in mind once the LLC filing is completed, LegalZoom can also assist you to transfer the title of the deed into the LLC. We have provided links to each process for your reference below.

LLC:
http://www.legalzoom.com/limited-liability-company/limited-liability-com...

Real Estate Deed Transfer:
http://www.legalzoom.com/real-estate-deed-transfer/real-estate-deed-tran...

If you have any further questions or concerns, please do not hesitate to contact our Business Services Division directly at (888) 381-8758 to speak with a representative.

Sincerely,

The LegalZoom Team

Submitted by Anonymous on May 2, 2011 - 6:14AM

My friend has been served with foreclosure papers. he has 10 days to respond to the notice by letter. he asked aa lawyer but he wants $1000.00 up front to write the letter. Is this something that he can do himself? and what should the letter say? should it be sent via certifies mail? thank you for a quick response, as you can see he has a very short time to respond. MBF

Submitted by LegalZoom Saman... on May 20, 2011 - 8:34AM

Hi. We are sorry to hear about this situation. Since we're not a law firm, we can't give specific legal advice about this situation regarding foreclosure. However, do feel free to contact our Attorney Services Department at http://attorneyconnect.legalzoom.com/ to search for an affordable attorney in your area to assist and advise you on this situation.

Submitted by Scared on May 11, 2011 - 3:04PM

I short saled my home a year ago. I just received a phone call from a collections agency saying I owe on the second loan. This is the first I've heard of this. I was told I walk away from a short sale owing nothing. Do I owe from a short sale? Who would be best to contact regarding looking into the paperwork I have from the short sale to see if I owe anything or not..A real estate lawyer or a bankruptcy lawyer?

Submitted by LegalZoom Nina F. on Jun 23, 2011 - 7:55AM

Hi thank you so much for contacting LegalZoom. While LegalZoom offers self help legal documents, your best bet is to contact an attorney regarding this matter. However, you can get free legal advice on the LegalZoom Facebook page every Friday. Check out Free Joe Friday: http://zoo.mn/FreeJoe.


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