Giving Up Your Home: Options to Foreclosure

Posted on November 7th, 2008 by saman

If you are struggling to make your house payments and would rather just let it go than make further arrangements with your lender, you may be wondering if there are any other options besides letting it fall into foreclosure. It is a hard decision to make, but if you are sure the best thing for your circumstances is to get a foreclosed home, there are some other options you may consider.

The most important concern if you are going to let you house go is your credit score. Obviously, allowing it to go into foreclosure is going to look very bad on your credit and make it hard for you to get loans in the future. There is an option to keep the judgment off your credit, and that is to sell your home on your own before it reaches foreclosure. If you have equity in your home this is even more beneficial because you can pay off your mortgage and still have money to put in your pocket.

Selling your home could be difficult with our economy being so tough right now; especially since lenders are tightening up with their loans, but it is your best option if you really want to get out from under your mortgage and save your credit rating.

The other option is to file bankruptcy, which of course will go rather harshly on your credit rating. It is important to talk to someone for guidance if you are considering this option. An experienced attorney or credit counselor can help guide you as to whether this is your best move or not. There are two types of bankruptcy to consider.

Chapter13: This form of bankruptcy can stop foreclosure because it allows you to keep your real property. You are basically reorganizing your debt, but you will continue to pay on it.

Chapter 7: With this form of bankruptcy you completely get rid of all your debt, the mortgage included. This looks worse on your credit rating and will interfere with your future chances of getting loans. This is a very serious step so make sure you do see an experienced attorney or other professional before jumping into it.

There is one other option if to get out from under your loan. It is known as a “deed in lieu of foreclosure.” Technically, you deed your home back to your lender and move out. This can be difficult to arrange with most lenders, especially with what is going on with the big banks and mortgage lenders right now. If they do agree to this, it will show on your credit rating and give you potential problems to explain in the future if you want to get other loans or mortgages.

No matter what you decide to do, it is important to start working on your options before it is too late and your home has already slipped into foreclosure. If the bank is already in the process of changing your locks and setting an auction date it is too late to do anything but move out.