When you can’t sell your house and either need to move for work or family reasons or simply can’t afford it anymore, foreclosure isn’t your only option. After looking into ways that you can make your house sell or ways to remain an owner, you can also work with your lender. Modifications, short sales and deed-in-lieu of foreclosure programs can all save you from a foreclosure and the problems that come with it.
Increase Your Home's Marketability
Before giving up on selling your house, take stock of what you have done to get it sold. If you haven’t staged your house or spruced it up to make it attractive to buyers, it might not sell. Putting in a few evenings and weekends of elbow grease could transform your house and yard into something that excites buyers. You also might want to make some simple upgrades like freshening a bathroom sink or painting your front door to help sell your house. Even though these won't cost a great deal of money to do, they can still increase your home's value.
Stay in the House
There’s a fine line between wanting to sell and needing to sell. If you can’t sell, you might be able to devise a plan to hold on to the house until its value recovers. Whether you commute by air to and from a new job in a distant city or you find a way to keep paying a too-high mortgage payment for a while longer, staying put will save you from foreclosure. Even though staying might not be your preference, it could be less painful than a foreclosure in the long run.
Become a Landlord
Turning your house into a rental and letting your tenants’ rent pay your mortgage can save you from foreclosure. You could even come out ahead, especially after the valuable tax breaks you get as a landlord. If you don't have any experience or know-how in being a landlord, hiring a property manager is an option. In exchange for a flat fee or a percentage of the rent, the manager can take care of the property, find tenants and collect rent for you. You can then sell the property when the market recovers or hold on to it as an investment.
Negotiate a Solution
When staying or renting won’t work and you really can’t sell your house through a traditional route, it’s time to talk to your lender’s loss mitigation department. If you’d like to stay in your house, you might be able to modify your loan by having it stretched out over time, having its interest rate cut or both. Sometimes, a lender will even forgive a portion of your balance. If you need to leave, you might be able to get permission to do a short sale where the property changes hands for less than you owe or you may get permission to give the deed back to the lender without going through the foreclosure process.
While you should be able to work something out with your lender before you get in trouble, some lenders take an “if it isn’t broke, don’t fix it” approach and won’t start working with you until you’ve missed a payment or two. Unfortunately, missing payments is a serious matter and can harm your credit. If you need to go this route, consider talking to a HUD-approved housing counselor for advice. The service is usually free.
The Consequences of Foreclosure
Getting foreclosed on is serious business. In addition to losing your house and the credit damage you’ll suffer from the late payments that lead up to the foreclosure, the actual foreclosure is a serious black mark on your credit. Even if your score recovers, you could find it hard to get another mortgage for years after the foreclosure since many lenders are wary of lending to a homeowner who already lost a house. Your lender may also pursue you for any difference between what you owe and what it gets for your house in the foreclosure sale. That difference could also be treated as taxable income by the Internal Revenue Service if you don’t qualify to have the taxes forgiven. The only way to get out of these last two consequences, if they apply to you, is to file bankruptcy, which carries its own set of additional problems.
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.