How Builders Can Avoid Foreclosure

Avoiding foreclosure.

A builder may construct a home or other building "on spec." When he takes this course, a builder undertakes the construction at his own risk and has no specific purchaser in mind. The builder speculates that he can sell the home or other building upon completion. Because a builder takes out a mortgage loan for the project, a foreclosure becomes a possibility if the property does not sell. If foreclosure looms, a builder can use specific strategies to avoid it.

Things You'll Need

• Mortgage loan agreement

Instructions

1. Schedule a meeting with your mortgage lender about the outstanding loan headed toward a possible foreclosure. Most builders maintain relationships with local mortgage lenders. However, if your lender is not local, schedule a phone conference with the representative assigned to your account.

2. Request a discount on the outstanding mortgage loan, which allows you to pursue a short sale. A primary reason why the spec home or building has not sold is because it's priced beyond a point that permits a ready sale on the open market. You needed to maintain that price to pay off the outstanding mortgage loan. A loan discount reduces the outstanding balance due on the loan.

3. Explain to the lender that without a loan discount, you may be forced to file for bankruptcy protection. A mortgage lender may be willing to discount a loan. In the long run, it saves the lender the time and expense associated with its foreclosure or your bankruptcy case.

4. Place the property on the market for sale at a reduced price (the short sale) if you do obtain a loan discount from the mortgage lender. The proceeds from the short sale pay off the discounted loan.

5. Propose to the mortgage lender a property surrender if the lender will not pursue a discounted loan in support of your short sale. Through a surrender of the property, you transfer title to the lender for a complete satisfaction of your mortgage loan obligation.

Tips & Warnings

• Consider hiring an attorney versed in foreclosure avoidance. Although the state and local bar associations cannot make a specific recommendation of a particular attorney, they do maintain directories of lawyers. Obtain contact information for these organizations from the American Bar Association.

• The strategies of a short sale or a property surrender are practical provided you not do have a poor track record of meeting financial obligations. If you faced foreclosure or related problems in the past, a lender will be far less likely to work with you to avoid a foreclosure on a current project. Moreover, by taking advantage of a short sale or property surrender today, you are not likely to be able to enjoy one of these compromises at a future date.

References

• U.S. Department of Housing and Urban Development: Avoid Foreclosure
• "Avoid Foreclosure"; Tamera Aragon; 2008
• 250 Questions You Should Ask To Avoid Foreclosure by Lita Epstein; 2007

Resources

• National Short Sale Center: How to Negotiate a Short Sale
• American Bar Association: Directory of State and Local Bar Associations