Avoid foreclosure

A traditional sale is when you sell your home for what it is worth.

If your home is worth more than what you owe, this could be a good option for you. You can pay off what you owe on your mortgage in full and likely have remaining funds from the sale. You don’t need approval from your mortgage servicer to sell your home, but it can help to notify them of your plans. Talk to a housing counselor to see if this is an option for you.

A deed-in-lieu is when you turn over ownership to your home to your mortgage servicer and move out. With a deed-in-lieu you are not responsible for selling your home.

With a foreclosure, you may still owe money on your mortgage even after you move out of the home, but a deed-in-lieu of foreclosure may help you avoid being responsible for paying any amount remaining on the mortgage, called a deficiency.

To qualify for a deed-in-lieu, you will need to get a loss mitigation application from your mortgage servicer, submit a complete application with supporting documents, and be approved to move forward with it by your servicer. Usually, the owner of your loan and your mortgage servicer will only approve a deed-in-lieu if your home has no other financial obligations tied to the property such as a lien.

A short sale is when you sell your home for less than what you owe on your mortgage. With a short sale, you are responsible for finding a buyer for your home and need approval from your mortgage servicer.

If you complete a short sale, the difference in the sale price and the mortgage amount may sometimes be forgiven by the servicer, but not always. This is an appealing option for those who owe more than their property is worth. If you have other mortgages on your home, the other mortgage servicers will also have to agree to the sale.

To qualify for a short sale, you will need to request a loss mitigation application from your servicer, send in a complete application and supporting documents, and receive approval from your mortgage servicer and the owner of your loan. Make sure you understand the terms of your specific short sale, including any tax implications, as the exact terms may vary.

If you can conduct a traditional sale, that’s frequently your best option.

When trying to decide between a short sale or deed-in-lieu, it’s important to consider that there is a difference in who handles the sale of the home. Both options are difficult to obtain if there are multiple liens on the property and both could have negative tax consequences since the IRS considers forgiven debt to be taxable income.

If you are unsure which option is best for you, contact a HUD-approved housing counseling agency. They can help guide you through the process of choosing one of these options and help you find new housing after you have moved out of the home.

With both a short sale and a deed-in-lieu, the difference between the sale price of the home and the mortgage amount you owe may be forgiven by your servicer, but not always. Be sure to discuss this with your servicer before proceeding with either option.

If the servicer agrees to forgive the outstanding amount, ask for a deficiency waiver in writing. If you're still required to pay the deficiency, you can ask to settle the deficiency for a smaller amount.

Foreclosure processes differ by state. In some states, the servicer has to go to court to foreclose on your property (judicial foreclosure), but other states do not require a court process (non-judicial foreclosure). Generally, borrowers must be notified if the lender or servicer begins foreclosure proceedings.

Under federal law, a servicer generally cannot start the foreclosure process until your loan is more than 120 days past due. There can be exceptions depending on your forbearance or other mortgage relief (often called “loss mitigation programs”).

Foreclosure can be expensive. In addition to the missed mortgage payments you will owe, you will also be charged several fees, including title search fees, attorney fees, and property preservation fees. These fees add up each month you are in the foreclosure process, so it is important to act quickly to see if one of these options could help you avoid foreclosure.

You could be eligible for federal assistance to help cover your home expenses through the Homeowner Assistance Fund. There may also be state or local grants available to you, and in some cases, your servicer may offer some resources. Contact a HUD-approved housing counseling agency to help you find any resources you may qualify for.

Unfortunately, scammers often target people who have fallen behind on their mortgage payments. Some will promise that they can save your home from foreclosure if you pay an upfront fee. Others will offer to buy your home for far less than it’s worth. Learn how to spot a foreclosure scam .

If you aren’t sure if it’s a scam, contact a housing counselor.