Nevada has one of the highest foreclosure rates in the country, over six times the national average. As many as one in every 76 homes in Nevada is in the process of being foreclosed upon. Many others are in default and on the brink of foreclosure.
A foreclosure can have a devastating impact on an individual’s creditworthiness, which in turn hamstrings one’s ability to obtain financing. A reported foreclosure almost invariably causes a steep drop in a borrower’s credit score and can remain for up to seven years. Additionally, if foreclosure sale proceeds are insufficient to cover the outstanding mortgage balance, the mortgage lender can obtain a personal judgment against the borrower for the deficiency. Although it is possible to repair one’s credit after a foreclosure, it is far less painful to avoid foreclosure altogether.
If a borrower anticipates defaulting on a mortgage, he should consider taking steps to protect his credit and avoid foreclosure. Communicating with the lender is critical. Foreclosure is expensive for lenders, who often want to avoid it as much as borrowers. Aware that many of their loans are at risk, lenders have become increasingly willing to consider alternatives to foreclosure. Alternatives include:
Loan modification or work-out: Sometimes lenders will renegotiate the terms of mortgages to reduce monthly payments to an amount that borrowers can afford.
Short sale: If a borrower or her broker can find a buyer for the property, even at a price substantially below market value, the lender may agree to accept the sale proceeds and forgive the remaining loan balance.
Deed in lieu of foreclosure: Lenders sometimes agree not to foreclose in exchange for the borrower’s agreement to deed the property to the lender, thereby avoiding the costs of foreclosure.
A skilled attorney can negotiate with a lender to minimize credit damage and tax liability. The federal government also has resources to help borrowers work with lenders, including the new HOPE for homeowners program. Rod Woodbury can be reached at 933-0777 or by e-mail at firstname.lastname@example.org.