Bankruptcy: A legal alternative that allows the borrower to clear any debt obligations by restructuring the payment terms. A bankruptcy stops the foreclosure process until the bankruptcy process is completed or the court allows the lender to resume the foreclosure.
 

Deed in Lieu: Voluntary conveyance of title in exchange for a discharge of debt.  The house must be free of other liens and must have clear title.  In simple terms, the borrower agrees to transfer title of the property to the lender, who accepts the property in exchange for the total debt. 

Deed of Trust: A legal document that dictates the terms of a loan used to buy a property and transfers the ownership of the property to a third party called a trustee until the loan has been paid in full.

 
Default: Occurs when the borrower does not meet its legal obligations according to the loan terms.

 
Forbearance: Under a forbearance agreement, the lender agrees to stop the foreclosure process and determines payment terms that, at a certain time, will bring the borrower current.

 
Foreclosure: A process in which a lender attempts to recover the amount owed on a defaulted loan. The lender has the option of selling the property or repossessing the property. The beginning of a foreclosure process starts after a borrower defaults on mortgage payments and the lender files a Notice of Default or Lis Pendens.

 
Lien: A legal claim on a property by a lender or other entity (called the lien holder) against the property owner that owes the money.

 
Lis Pendens (LIS): A publicly recorded notice of a pending lawsuit against a property owner that may affect the ownership of a property. This process is required in a few states to begin the foreclosure process if a borrower is in default.

Modification: A transaction in which lender agrees to modify any or some of the terms of the mortgage. This is a process where an existing note is modified, but not cancelled. Changes may include: extending the term of the loan, changing the monthly payments, changing the interest rate, etc.

 
Notice of Default (NOD): A publicly recorded notice stating that a property owner is behind scheduled loan payments for a loan secured by a property. This process is required in a few states to begin the foreclosure process if a borrower is in default.

 
REO (Real Estate Owned): A class of property owned by a lender, typically a bank, after an unsuccessful sale at a foreclosure auction.

 
Reinstatement: Occurs when the property owner pays off the amount in default to bring the loan payments current in order to stop the foreclosure process and return to the original terms of a loan.

Short Sale: (Also called "Short Pay" or "Pay Off") A process in which a lender agrees to receive a lower amount of an owed debt in exchange for the sale of the property to a third party.

Number One:

Absolutely DO NOT ever deed your property to a third party without absolute confirmation your loan has been paid off!

Note: if you believe this option is best for you, please consult with an attorney - not the buyer's attorney - before completing the transaction.

If you deed your property to a third party, that party then controls the property. The new owner can rent the property (and keep the rent), attempt to sell the property to make a profit, move into the property or use the property in other ways.

What the new owner might not do is make mortgage payments, and that could become a big problem for you.

Just because you no longer own the property does not mean you are no longer responsible for the mortgage loan obligations. The lender made the loan to you. And until it is paid off you will be primarily responsible for the mortgage obligation.

If you give up control of the property and the new owner does not pay on the loan, the damage to your credit could be catastrophic.

Number Two:

Do Not sell your home at a huge discount.

Unless the actual foreclosure sale is less than 45 days away, you have time to explore options. Take a day or two and make a few phone calls. As a general rule, if someone is pushing you hard to get you to sell your property to them, it's probably because the deal they are proposing is very favorable - to them.

If you have equity in your home, it belongs to you. Let's see if we can get it to you.

For a Free, no obligation assessment, just call or send and email.  You do not need to even give us your name.

Note: No one will call you on the phone unless you specifically request it.

Number Three:

Do Not authorize a prospective buyer to deal directly with your lender.

The buyer has one goal and one goal only, and that is to negotiate a low, probably very low, price with your lender. The buyer will ask your lender to accept a discounted payoff.

The negotiations could go on over an extended period of time, and if the transaction does not work out the buyer may elect not to buy your property. It could leave you with very little time to resolve the situation and avoid foreclosure. Further, you have no control over the information that goes to your lender or the accuracy thereof. It is entirely possible that the buyer could handle the negotiation and presentation of information in a way that makes it very difficult for you to resolve your loan situation later.

If, however, you believe that your best option is to allow the buyer to work directly with your lender, make certain you consult with a real estate professional and/or an attorney before signing a contract. If you are going to do a Short Sale get representation from a real professional. It costs you nothing - the lender pays the fees. Someone should be looking out for you.

We can help, and it costs you nothing. We have fought for homeowners like you many times - and won. The lender wins also. They do not want to take your property through foreclosure. That's why they will negotiate to get the deal done.

Number Four:

Do Not do nothing.

A surprising number of people just accept what they see as the inevitable, and let foreclosure run its course. Don't let it happen - the damage to your credit will follow you for years.

Take a little time to explore potential options. You do not want a foreclosure on your credit record. It will hamper your ability to get a consumer loan or a car loan for at least a few years, and it will be very difficult to obtain another mortgage for a very long time.

Also, in some cases, doing nothing and letting the property go to foreclosure leaves you open to the lender coming back to you AFTER the foreclosure in an attempt to collect.  When a lender agrees to and completes a short sale, they release their rights to this option.

Consider the effect on your credit report:

You will suffer much more damage to your credit report with a foreclosure than you will with a short sale. It will also take considerably longer to restore your credit rating once your financial difficulties are resolved.
In general, here's what happens:

One of Your Option's is: Full Foreclosure or a Deed-In-Lieu of Foreclosure:

Expect about the same things to take place. Quite often this means a loss of between 200-280 points on your FICO score. A pre-foreclosure FICO of 675 could drop to as low as 395, essentially eliminating you from many years of future credit approvals. It may be as long as three years before you can qualify for another home loan.

Best Option = Short Sale:

Expect to suffer some credit score damage, but nowhere near as much. Loss of FICO points will be around 75-125 and your report will show it listed as a 'pre-foreclosure in redemption', which is far less negative. You will most probably be able to secure a new home loan in about a year and a half.

In any case, it is a good idea to consult with a lawyer, tax accountant (CPA) or a good real estate agent who is experienced with short sales.