Despite the fact that there are multiple options for homeowners in a difficult financial position who feel that foreclosure may be close at hand for their particular situation, there are homeowners who are still able to take advantage of foreclosure alternative options that allow homeowners to either sell their home at a loss, when negative equity is a problem, or simply surrender the deed to their home in exchange for being in a position where they are clear of any remaining debt obligations to their mortgage servicer.
These short sale and deed in lieu of foreclosure programs have been one option that homeowners have used when they felt that foreclosure may be inevitable or were simply unable to qualify for alternative forms of home loan assistance that would allow them to remain in their home. Understandably, a short sale for an underwater homeowner or a deed in lieu of foreclosure plan for an individual suffering financial hardships are not the optimal method that homeowners have chosen when it comes to finding ways to prevent foreclosure, but they can be less damaging to a homeowner’s credit score in some cases and, as a result, lead to a better chance at a homeowner finding home loan opportunities at a nearer time in the future once they have gained a more stable financial ground.
Obviously, selling a home through a short sale option or surrendering the deed to one’s property are not favorably viewed by many financial institutions, like banks who may offer these individuals another loan in the future, but when homeowners who take advantage of these programs are in certain position of financial hardship, they may be seen in a more favorable light than a homeowner who has gone through a formal foreclosure. Typically, homeowners who participate in one of these foreclosure alternative plans, through either the federal Making Home Affordable Program or through a state-specific plan that may be available through certain Hardest Hit Fund programs will have to have at least attempted to find assistance through the modification program, unemployment forbearance opportunity, or another extension option available from HAMP and their servicer.
Also, homeowners who can show documentation that their financial troubles were out of their control, and not as a result of simply acquiring debt that is beyond their means to repay, may be seen, again, more favorably by lenders in the future or could find that their credit history takes less of a hit as a result. While it’s true there are some homeowners who have seen setbacks and damage to their credit score as a result of a short sell or deed in lieu plan, there are options like relocation assistance they may make up for higher costs that could be met as a result, like putting down a security deposit on an apartment.
Yet, homeowners need to remember that if they miss mortgage payments as a result of these financial hardships or outright default on their home loan, this could have a negative impact in their financial lives, so homeowners who are still struggling with their mortgage payment and may not have had a successful home loan modification program offered, may want to breach the subject of either a short sale or deed in lieu of foreclosure plan early, in the hopes of escaping a toxic situation with their home loan that could, once again, do a great deal of damage in their credit life if not addressed early.