I Can't Sell My House: Should I Let It Go Into Foreclosure?

Becoming a renter may not seem like the worst idea when experiencing mortgage woes. Constant collection calls and financial stress may further your fantasies of homeownership abandonment. However, allowing your home to go into foreclosure is not always the best solution. Even if your home does not sell immediately, there are ways to resolve the situation.

Methods of Sale

Conventional methods of selling a home do not always work when the housing market is down. If you are attempting to sell your home for the balance of the mortgage loan rather than its fair market value, you may learn quickly that buyers are not willing to comply. There are alternative methods of selling your home, such as a short sale or lease option that can attract a buyer much faster. A short sale is when a lender allows you to sell your house for less than the balance of the loan because it is estimated to be worth less than the loan. A lease option occurs when a buyer agrees to lease the property for a set period. At the end of the time period, the buyer must purchase the home at a set price.

Making Home Affordable

In February 2009, the Obama Administration created the Making Home Affordable Program. The program exists to help homeowners get out of predatory mortgages and mitigate the strain of mortgage debt during financial hardship. Check to see whether you qualify for the Making Home Affordable Program prior to letting your home go into foreclosure. You may experience a win-win situation: a reduced mortgage payment and the opportunity to remain in your home.

Credit Impacts

If you plan to purchase a new home in the next few years, a foreclosure is not a viable option when your home doesn't sell. Foreclosure can be treacherous when it comes to personal credit. "Foreclosure affects your credit score by 250 points," explains Jessica Bennet on the MortgageFit website. Foreclosures linger on a credit report for 7 years, causing many homeowners to be unable to qualify for many types of loans until the blemish is removed.

Legal Ramifications

Following a foreclosure, a mortgage lender can still pursue the unpaid balance of your loan. This can mean the balance could haunt you for years after the foreclosure process ends. "What can be scary is that the judgments don't have to be obtained immediately," explains Les Christie of CNN Money. A lender or collections agency can come after you once you are back on your feet financially to ensure it is able to recoup the debt. However, not all states permit lenders to pursue deficiency judgments. Review foreclosure laws in your state to determine your risk of judgment.

References

• MortgageFit; How Foreclosure Affects Your Credit Score; Jessica Bennet
• CNNMoney.com; You Lost Your House -- But You Still Have to Pay; Les Christie; February 2010
• SmartMoney: The Tax Implications of Foreclosures; Bill Bischoff; June 2009
• IRS.gov: Canceled Debts
• MSN Money; Use a Short Sale to Escape Foreclosure; May 2009