Ron Thompson

There are alternatives to home foreclosure

By Ron Thompson

Homeowners need to know that there are alternatives to foreclosure.

The recent Economic and Housing Market Update conference was chock full of good news.

Home sales in New Hampshire increased 14% from 2012 to 2013, the number of homes on the market for more than six months has decreased, and foreclosures in the state dropped to 2,750 in 2013 from a high of 4,000 in 2010.

Photo of a sign for a bank-owned home sale
CC by Nick Bastian, Tempe, AZ

Before we break out the champagne, however, let's keep in mind that 2,750 is still a lot of foreclosures, which are among the most stressful events a person can experience.

If you are behind in your mortgage payments and see no way to catch up, or if you're unable to sell your home for a price high enough to pay off your existing mortgage, it's a good idea to talk with your lender. When that time comes, it's helpful to know there are alternatives to foreclosure.

Foreclosures occur when a bank sells a home at auction because the homeowner has defaulted on their mortgage loan agreement. If the bank cannot sell the home for a price equal to or greater than the mortgage balance, the homeowner must pay the difference. An unpaid balance will appear on the borrower's credit report in the form of a collection, which can make it very difficult to obtain financing in the future.

What people may not realize, however, is that there may be two alternatives to foreclosure: a short sale and something known as a deed in lieu of foreclosure.

A short sale involves negotiating with the lender to persuade them to allow the home to sell for less than the balance owed on the mortgage. If the lender agrees, they will sometimes forgive the balance remaining on the mortgage after the sale. The lender will almost always require a list of recent sales of similar homes in the area or a full appraisal. It remains the homeowner's responsibility to sell the home, not the lender's.

A deed in lieu of foreclosure is another scenario, in which the lender essentially allows the homeowner to "give them the keys and walk away." The homeowner signs over the deed (their ownership) to the lender, and in exchange, the lender forgives the entire balance owed on the mortgage.

Foreclosure can be a confusing and challenging time. A good first step is to contact your lender and ask to talk through your options. Another resource is homehelpnh.org, a statewide foreclosure counseling initiative of the state of New Hampshire. It offers free legal clinics and seminars on alternatives to foreclosure.

Ron Thompson is a Welcome Home Loans Mortgage Loan Originator at the Community Loan Fund.

NMLS #225348. Licensed by the New Hampshire Banking Department.