Foreclosure, Deed in Lieu, Short Sale – Which is Better?
Buying after foreclosure is a topic that I am passionate about. You should know that there is light at the end of the tunnel.
You CAN buy again after losing a home to financial hardship.
This article isn’t meant to be a rant about what went wrong. It is a road map for making more informed decisions when faced with the inevitability of losing your home.
By making more informed decisions, you will be empowered with the opportunity to buy again after foreclosure a quickly as possible. By now, most distressed homeowners have discovered that a loan modification is not a viable option.
Yes, I know there are a few homeowners that received a modification, and of those folks – I know many that ultimately realized that they are still so far upside down on their home that a temporary reduction in the rate and payment does absolutely nothing for staying in the home long term.
If you are one of the vast majority that did not qualify for a loan modification, or you have a modification but still see no light at the end of the tunnel, you have three options available to you to close this chapter, and start on the road to recovery and once again, homeownership.
Which Option is Best for You?
The best option is going to depend on what’s best for you. Let’s look at each option so that you better understand the consequences of choosing.
A foreclosure can occur once your mortgage payments fall behind 90 days or more. If you do nothing, and let the bank take the home on their schedule and on their timeline, you may be in for quite a ride.
Most banks are so backed up with delinquencies, pre-foreclosures, short sales and foreclosure proceedings that this process can be dragged out for up to 2 years in some cases. The problem with allowing the bank to dictate the foreclosure process is that you postpone your recovery for possibly years.
The time you have to wait before buying again after foreclosure does not start until after the deed of trust transfers from you back to the bank, or the new owner in the case of a short sale.
Deed in Lieu of Foreclosure
A deed in lieu is a foreclosure alternative that puts the timeline and control over the process in your hands. This is an incredibly empowering option for more reasons than just expediting the recovery process.
Many lenders will actually pay you to cooperate and speed up the foreclosure process. This is also known as cash for keys. Cash for keys will help you pay moving costs in exchange for leaving the home in good condition when you leave.
When the lender allows you to sell the home for less than what is owed, that is a short sale. This is entirely a personal choice by a home owner.
All three of these options are treated as the same thing when trying to buy again.
All three options have different tax liabilities (consult an accountant or tax planner). You can buy again using a FHA loan in 36 months, 3 years from the date that the home transfers from your name to the new owner – whether it’s a bank or a buyer of your short sale.
- Foreclosure is unpredictable, can take an extremely long time and gives you no control over the process.
- Deed in Lieu gives you control over the time-line and process, and very likely will pay you to move.
- Short sale gives you some control over the time-line, and most often, will give you more time.
All three options trigger the exact same recovery period. Some options allow you to recover quicker than others.
If you have any questions about any of these options, please feel free email or ask a question below.