Loan Workout

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Negotiate different loan/payment terms with lender to resume affordable payment schedule.

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Best requested before payments are missed.

Regular Sale or Voluntary Auction

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These are NOT options for short sale properties because they won’t pay off all lien holders.

Deed in Lieu of Foreclosure

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Attempt to convince lender to take title to property instead of foreclosing.

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Virtually non-existent. Extremely rare.

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Short sale is better on credit rating

Bankruptcy

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Chapter 7 (liquidation)

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Chapter 13 (reorganization)

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May only delay the foreclosure a few short months.

Do Nothing/ Walk Away

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Take no action and allow the property to be foreclosed

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There is nothing positive about this option

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Foreclosure becomes a certainty.

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Foreclosure is perhaps the greatest negative that can show on a credit report resulting is the biggest lowering of the borrower’s credit score.

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FNMA proposal to levy additional penalties (blacklist) for owners that simply “walk away” and abandon their property.

Short Sale

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The voluntary agreement of the lender to issue a “payoff letter” (estoppels) releasing the title for less than the amount owed on the loan allowing a sale to occur.

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Approved by the lender if they determine that the short sale will net them more than a foreclosure.

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Only approved after exhaustive review by the lender

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Lender must be convinced that the owner can’t pay

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Approval or disapproval takes 45-90 days

Bring Cash to Closing

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If property sells for below the loan amount a seller has the right to pay the loss difference or a portion of the difference.

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A Short Sale transaction can be negotiated so the lender takes a loss and the seller also makes a financial contribution to the lender(s) to get the transaction closed and avoid foreclosure.