The real estate and foreclosure crisis in many states is fueling a nationwide recession and many distressed homeowners don't realize that they have options. Knowing your options could help you find an avenue to avoiding foreclosure. Reducing the number of foreclosures could aid in the recovery of the real estate market. Below are some of the more popular and effective foreclosure avoidance options:

Communication The single biggest mistake mortgagors make is avoiding communication with their lender. Timely, honest communication and cooperation is critical to resolving a default. The majority of the time, especially in down markets, lenders are more than willing to work with delinquent mortgagors, offering additional time, custom financing options and many other workout solutions. Avoiding notices, not returning phone calls or even responding with hostility to your lender is the fast track to foreclosure.

Forbearance A forbearance plan is a great option for homeowners who:
1. Have experienced a temporary lapse in income or unexpected expense causing them to fall behind in their payments;
2. Who are now able to resume payment;
3. Who are unable to cure the entire default in one lump sum.
A standard forbearance plan requires the resumption of the regularly scheduled mortgage payment plus a payment toward the arrears amortized over a scheduled period of time. This option is not suitable for those who are no longer able to make their regularly scheduled mortgage payment.

Sale During the default and throughout foreclosure process, (in most states) the homeowner retains the right to sell the property. Limitations may exist depending on value and timing and should be discussed with the lender as soon as the decision is made to list the property for sale. Late in the foreclosure process, a postponement of the foreclosure sale may be necessary to allow time for escrow to close and must be approved by the lender.

Deed-in-Lieu of Foreclosure An increasing number of homeowners these days are finding themselves upside down in their loans; owing more on the loan than the value of the property. This often leaves them feeling as if their only option is to walk away. A Deed-in-Lieu of Foreclosure is a voluntary conveyance of title to the lender. This option is suitable in a situation where sale, refinance or reinstatement are unlikely due to negative loan to value ratio or extreme hardship situations. This option has the potential benefit of saving both the homeowner and the lender the time, expense and distress of a foreclosure. Qualifying factors may exist and must be approved by the lender. Depending on laws which vary state to state, there may be negative tax consequences and/or retained liability. Legal and tax advice is suggested.

Short-Sale Another little known option available to homeowners, who find themselves upside down on their mortgages, is a short sale. A short sale is the acceptance of an offer to purchase which fails to fully satisfy the debt. In this case the lender, rather than the homeowner, has the right to accept or decline the offer, as it requires the lender to write-off a portion of the debt. In cases of multiple trust deeds, additional negotiations may be required. Depending on laws which vary state to state, there may be negative tax consequences and/or retained liability. Legal and tax advice is suggested.

It's important to note that laws vary by state and not all lenders offer any or all of these options. Also, some lenders may offer special programs customized to the individual needs of the mortgagors. It's critical to call your lender as soon as possible and discuss any options that may be available to you.

Learn more about this author, Toni Scandlyn.
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