This article involves a question that a potential client called and asked me, that I think is fairly typical of today's housing market. I spoke with this young man, who was just bewildered and beside himself. Why? Because he knew that in three months his interest rate was set to adjust, and he can't make the payment when it does. He asked me, "What should I do? Should I stop making payments and let it go into foreclosure or should I consider doing a short sale?" I felt for him and helped him consider his options. Let's take those questions in order.

What should I do? The first step is almost always calling your lender and letting them know that you are in that situation. Many times they are willing to renegotiate the terms of the loan. Often they are willing to lock in a rate, lower a rate, or lock in your payment. Why? They want to avoid a short sale or a foreclosure, which will always result in a loss for them. If you find them less than helpful, sometimes an attorney who offers credit counseling services can assist you for a fee.

Should I stop making payments and let it go into foreclosure? BAD IDEA! A foreclosure is the last possible resort only after you have exhausted all other options. It can stay on your credit for ten years. Also, they have the ability to sue you for additional funds taken from the homes equity in certain circumstances.

Should I consider doing a short sale? This is a good idea. In a short sale the lender agrees to consider the amount owed as paid in full if you can sell the house for a lesser amount. The catch is that sometimes they can send you a 1099 for what the IRS calls debt relief income. But the Short sale typically stays on your credit only for three years. In order to do this you will need to contact a real estate broker, as most lenders will not work with a homeowner on short sales unless they have engaged the services of a broker. Good news is they pay the broker, so you don't have to.

Do you have questions about this subject? Please call me @ 916-376-9328. I will be glad to help.