Special Section - Fighting foreclosure
8 do's and don'ts for fighting foreclosure

5. Short sale/deed in lieu of foreclosure. A short sale takes place when the bank allows you to sell your property even though their mortgage won't be paid. Be careful -- the bank may allow the sale to go through, but only on the condition that you repay the deficiency. In a deed in lieu of foreclosure, the property is signed over to the bank in exchange for the bank giving up its rights against you. Why might a bank agree to either of these? Lenders spend $30,000 or more to foreclose on a property. Most lenders will consider these options to avoid foreclosure costs.

6. Walk away from the house. Pack your things and leave. The only issue remaining is whether your lender can sue you for any deficiency still owed after the sale, and that depends on the state you live in and the type of mortgage you have. You'd be wise to speak to an attorney before taking this step.

Any sale or transfer of property has tax consequences, including a foreclosure sale or a deed in lieu of foreclosure. Seeing an accountant is probably a good idea, as well.

Here are two options NOT to consider. In other words, they're scams.

1. Signing over your property title to another company: Some companies say that after the mortgage is current they will re-sign the property back over to you. This rarely happens. Instead, the company is likely to pull out equity, not make any mortgage payments and allow the property to be foreclosed. You will not be able to save the property from future foreclosures because the property is no longer in your name.

2. Get loan modification help from a non-HUD-approved housing counselor: In the wake of the housing crisis, unscrupulous firms are advertising mortgage modification help. In reality, they charge hefty fees upfront and may sabotage borrowers with hefty interest-rate hikes down the road or simply take the money and run. As the Treasury Department's new Web site FinancialStability.gov puts it: "Beware of any person or organization that asks you to pay a fee in exchange for housing counseling services or modification of a delinquent loan."

When facing foreclosure, you have options, but you need to avoid the scams and act quickly if you want to have the best outcome. Delaying only makes foreclosure inevitable.


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