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Giving Up Your House
Exhaust All Options To Avoid Foreclosure

It is important to understand what foreclosure means and why it is so critical to get help early to avoid it.  The impacts of foreclosure are significant – including potential loss of equity in your home and the negative effect on your credit score.  The emotional impacts are considerable as well – for you and your family.

For these reasons and more, be sure that you and your lender explore all options to foreclosure and don't give up. 

However, if homeownership is no longer affordable and you do not qualify for a modification or similar alternative, there are options available to help you "exit gracefully" and avoid some of the financial and emotional impacts of foreclosure.  These options must be weighed against the impact of a foreclosure which may drag on for six months to a year or longer, while you continue to live in the home rent-free.

  • Short Sale
    A short sale occurs when your property is sold at a price less than the amount you owe on the mortgage, and your lender agrees to the "short" payoff.  In other words, the lender agrees to take as payment in full the amount you clear on the sale, even though it is less than what you owe.  This debt forgiveness may have tax implications, see the "Tax Consequences" side-bar on another page of this website.  A short sale becomes an option if you are behind on your mortgage payments, you want to leave the property and do not have the funds to pay the difference between the net proceeds from the sale of your home and the mortgage.  For delinquent homeowners and lenders, short sales provide a way to avoid many of the costly impacts of foreclosure.

    A short sale may make sense if you:

    • Do not qualify for any options to keep your home, including HAMP, forbearance and reinstatement.
    • Need to move in order to keep or obtain employment.
    • Don't think you can sell your home at a price that would cover your loan amount.
    • Have considered how a short sale will hurt your credit score -- it can have the same impact as a foreclosure.
    • Hire a real estate professional that is very familiar with short sales.

    Note that some insured loans and those owned by Fannie Mae and Freddie Mac, have special streamlined short sale transaction programs.  Ask your lender if you qualify for these programs.  In 2012, Fannie Mae completed 73,528 short sales. 

    Be aware that a lender may ask you to sign a promissory note to pay off the amount of the loan that is not covered by the short sale.  Such an agreement is generally not a good idea and before you agree to sign a promissory note, thoroughly discuss this option with a foreclosure or bankruptcy attorney.  In fact, even if you do not sign such a promissory note, a lender can still sue for a deficiency judgment following a short sale if the short sale agreement does not state that the lender waives its right to the deficiency. 

    In Ohio, property cannot be sold at foreclosure sale for less than two-thirds of the appraised fair market value. (See Ohio Rev. Code §§ 2329.20, 2329.17).  This limits the amount of the deficiency that is available to the lender.  Furthermore, a deficiency judgment rendered in a foreclosure action on a homestead  property is not enforceable after two years have elapsed from the date of the confirmation of the judicial sale of the property. (See Ohio Revised Code § 2329.08). 

  • Deed-in-Lieu of Foreclosure
    With a deed-in-lieu, your lender accepts the voluntary transfer of the title of your home back to them in exchange for cancellation of your mortgage debt.  This debt cancellation may have tax implications, see the "Tax Consequences" side-bar on another page of this website, and it may not be possible if there are other liens against your home.

    A deed-in-lieu may make sense if you:

    • Do not qualify for any options to keep your home, including HAMP, a short sale, forbearance and reinstatement.
    • Are behind on your mortgage and have received a notice of default.
    • Have recently filed for bankruptcy protection.
    • Owe more on your loan than the home is worth.
    • Have tried, unsuccessfully, to sell your home at a price that would cover your loan amount.
    • Have no other liens or encumbrances on the property (such as a second mortgage, tax lien or homeowner's association lien) or the other lien holders are willing to cooperate in the short sale by taking less than the full amount owed.

    As with short sales, some insured loans and those owned by Fannie Mae (Mortgage Release™) and Freddie Mac, have special streamlined deed-in-lieu transaction programs.  Ask your lender if you qualify for these programs.

    Similar to short sales, to avoid a deficiency judgment with a deed-in-lieu of foreclosure, the agreement must expressly state that the transaction is in full satisfaction of the debt.  If the deed-in-lieu of foreclosure agreement does not contain this provision, the lender may file a lawsuit to obtain a deficiency judgment.

  • Cash For Keys
    In a cash-for-keys offer, the lender will actually pay you to vacate the home in a timely manner.  It is in the lender's interest to avoid the cost and time involved in filing a foreclosure.  When you agree to accept the cash and move out on a mutually agreed upon date, you usually also agree to maintain the property and leave it empty and clean.  Though the money you receive is intended to help pay for your relocation costs, it is often not paid until after you exit the property and after the lender verifies that you upheld your end of the bargain.

    Cash-for-keys is essentially an add-on to a deed-in-lieu or short sale.  See above for possible problems with deficiency judgments and tax consequences of these arrangements. 

  • Save The Dream Ohio - Transitional Assistance Program
    Save the Dream Ohio, Ohio’s foreclosure prevention initiative administered by the Ohio Housing Finance Agency, has six separate programs to address the different needs of Ohio homeowners.  When staying in the home is not the best option for a homeowner, the Transitional Assistance Program can help. 

    The program offers relocation assistance payments of up to $7,500 to homeowners who complete a short sale or deed-in-lieu agreement as an alternative to foreclosure and leave the property in good condition.  This program also offers an incentive to servicers and second lien holders to complete short sales and deed-in-lieu agreements, extinguish all remaining debt and help homeowners exit their homes gracefully.  Assistance is subject to approval by the mortgage servicer.

  • Walking Away, a.k.a. Strategic Default
    Refers to the situation where a home owner can afford to continue making the mortgage payment but instead abandons the home and lets it go into foreclosure.  This is usually done where the value of the home has fallen drastically and the amount owed on the mortgage is much more than the home’s fair market value.  While paying such a mortgage does reduce the amount owed on the mortgage, it does not increase the homeowner’s equity in the house.  But there is a cost to walking away.

    Walking away can have dire and lingering financial ramifications.  Because a foreclosure will remain on a homeowner’s credit report for seven years, a homeowner's credit score is among the biggest casualties of any foreclosure, whether voluntary or otherwise.  

    Landlords and employers may look at your credit score before renting or hiring you.  However, it is important to note that with each passing year, a default will have less of an impact on your credit.

    Sometimes the lender never files a foreclosure or files one but dismisses it before completion.  In either situation, the homeowner remains the legal owner of the house.  Even though the homeowner has walked away from the house, he is still legally responsible for it until the title is transferred to a new owner.  There are cases where the walk-away homeowner finds out years later that he is legally responsible for housing code violations or demolition costs for the home that he abandoned.

This website provides general legal information and not legal advice.  The law is complex and changes frequently. 
Before you apply any general legal information to a particular situation, consult an attorney. 
If you cannot afford an attorney call 1-866-Law-Ohio (1-866-529-6446) or visit OhioLegalHelp.org for your closest legal aid office.