You may be quite prepared to sell your home to solve the problem, but can't do so because the home's value is less than the amount you owe. You are "upside down" on your mortgage.

Most homeowners in this position think that foreclosure is inevitable, and the only possible outcome. That is not the case.

There are several reasons why you should try to avoid foreclosure if at all possible . . . not only does a foreclosure do long term and substantial damage to your credit, but a foreclosure on your credit history can affect present and future employment, and security clearances even at lower levels.

If you are in this position and facing foreclosure, don't assume that there is no alternative. The sooner you act, the greater the chance of working out a way forward. There are two main options to pursue, but please note that they both require that you are genuinely suffering hardship and do not have the means to rectify the situation from your own resources.

CARE: please be very wary of scams where an organization promises to help you with a mortgage modification or a short sale in exchange for up-front or ongoing fees. You should NOT pay anyone up-front for this.

Mortgage Modification

If you have no plan or need to relocate from your home, and reducing your mortgage payments by up to a few $100's will resolve your problems, approach your mortgage lender to ask for your mortgage to be modified by restructuring at lower interest rates or providing other temporary or longer-term relief. Lenders are increasingly aware of the benefits of helping to prevent foreclosure if they see the opportunity. Of course, the proposal must be viable.

However, be aware that mortgage modification may not have a sufficient impact on your monthly payments to resolve your overall problem if it is significant. The interest rate may be modified, but the principal (the total balance owed) is unlikely to change. And of course, if your circumstances mean that your home needs to be sold, then mortgage modification is not a solution.

Short Sale - a Dignified Solution

A short sale is the sale of a home where the net proceeds are insufficient to clear the mortgage(s), and the owner is unable to make up the shortfall from his own resources. Provided the owner is able to demonstrate appropriate hardship, the mortgage lender approves the sale contract and allows the sale to go through.

While hardship may well mean the inability to make the mortgage payments, this is not always going to be the case. It may instead reflect the necessity to sell (but without having the resources to make good a shortfall), and examples could include enforced job relocation, divorce, health reasons, and so on.

The short video below gives a quick summary of what constitutes a short sale:-

A short sale offers a dignified solution to a homeowner's financial crisis. While a short sale will affect your credit, the impact is significantly less and for a shorter period than a foreclosure, and should not affect employment or security clearance issues.

Mortgage lenders are co-operative towards short sales, because if the only alternative is foreclosure, there are several reasons why they will lose less and benefit more from an agreed and structured short sale.

In April 2010 a government scheme took effect, known as HAFA (Housing Affordable Foreclosure Alternatives). HAFA set out a clear structure and timescales for qualifying short sales, including several benefits and incentives for distressed owner/occupiers. In July 2010, Fannie Mae and Freddie Mac loans were incorporated into the scheme. FHA and VA loans are not included, but they have their own structured approach.

As a homeowner who is considering a short sale, the most important thing is to talk it through with a Realtor who fully understands the process and the pitfalls to avoid, as poor handling of a short sale can make a difficult situation even worse. That means working with a Realtor who is properly trained in short sales, remains up to date with the latest developments, and remains pro-active throughout the process.

My CDPE Qualification

I have undertaken specialized training in the issues surrounding distressed property ownership, and have been granted the CDPE designation (Certified Distressed Property Expert).

The complex world of short sales is constantly changing and evolving, and as a CDPE member I stay very close to this fast-moving area of real estate, enabling me to give the best and most current advice.

As a result, I am very well placed to advise you and help you through these difficult times. I encourage you to contact me to let me help you without delay - it is never too early to talk it through, but if you leave it too long, it may be too late for me to help.