When preventing foreclosure, saving your credit could be the most important things to remember.

Your credit may be adversely affected by a foreclosure, a short sale may be the answer.

Given today’s real estate market, many homeowners are left with little or no equity in their property , facing a foreclosure process because they owe close to if not more than the value of the loan on their home. In these types of cases, lenders may sometimes accept discounts on mortgages to allow the sale of the property and avoid potential foreclosures and bankruptcies.

They are not doing this out of charity. These lending institutions don’t like bad loans on their books. They are also not in the business of selling real estate. More importantly it may cost them considerably more time and money to sell these properties at the conclusion of the foreclosure process. The premise behind a short sale is that the borrower is also in severe financial stress.

For example, consider that a homeowner with a $200,000 mortgage is late on his or her loan payments and is facing foreclosure. With the consent of the homeowner, an offer is made to the lender for $150,000 as full payment for the loan, which is accepted. The home is than sold to the buyer and the mortgage debt is forgiven.

Hardship letter

Most lenders will request a hardship letter that details the reasons a homeowner has not made the defaulted mortgage payments. This is usually an extensive request, which may require the homeowner to submit pay stubs, tax records and other personal financial records, along with the letter. It is essential that you submit everything that is requested.

HUD-1 settlement statement

A lender will also require a written contract between the homeowner and the buyer. A preliminary HUD-1 settlement statement will reassure the lender that the homeowner isn’t receiving any proceeds from the short sale. The HUD-1 form will disclose all charges imposed upon the homeowner and buyer for the real estate transaction.

It usually takes several weeks to receive an answer from the lender once you have submitted the HUD-1 settlement statement and all of the other supporting materials.

Keep in mind that the foreclosure process is moving along during this short sale request, so it’s not a bad idea to ask the lender to extend it until he or she has had time to consider your offer.
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