LSS Center for Financial Resources
Breck Miller, Community Relations Coordinator
As we reach the tail end of National Home Ownership Month (also known as ‘June’), I thought maybe it would be appropriate to talk about the ways to end ownership of your home. Hey, all good things must come to an end, right?
Sometimes the end is by our choice. Sometimes we don’t have a choice and it is just the reality of the situation whether we like it or not. So now what? How do I get out of this? What are my options? All very good questions, so let’s look options for ending home ownership.
Sell It – For most people, this is the natural option. If, however, you are facing financial challenges that will definitely prevent you from keeping your home, this is most often the best option for you as well. I’ve heard people fight hard against this option because they don’t want to give up their house. But if you are going to lose it anyway….
Here’s the deal. If your home gets foreclosed, the bank will take the home and sell it for whatever you still owe them. If it is worth more than you owe, they will not return the balance to you. If you have significant equity in your home, sell it yourself, pay off the debt, and hold on to the balance of the profit for your future.
Foreclosure – This option for ending home ownership is probably the least desirable. After missing a few payments, the bank will take the house from you and sell it. Not only do you leave the situation with nothing, but now have a foreclosure on your credit history. This one will definitely hurt your credit score.
The foreclosure process will vary state by state. Here in South Dakota, you are typically about 6 months behind when the county holds the Sheriff’s Sale and auctions your home, usually to the bank that holds your mortgage. In South Dakota, you do not have to be out at the time of the Sheriff’s Sale. You actually have another 180 days to vacate the property before they can force you out (Statutory Redemption Period), regardless of who buys your home. You want to avoid foreclosure; but if you can’t, know your rights.
Deed-In-Lieu – A Deed-In-Lieu is something of a compromise between selling your home and letting it go through the full foreclosure process. Rather than the Sheriff’s Sale and Statutory Redemption Period, you agree to peaceably turn the home over to the bank and vacate on your own. Because you are making an effort to work with the bank, this option to end home ownership will have less of an impact on your credit score.
Do be aware that a bank may refuse your offer of a Deed-In-Lieu. They aren’t just being mean about it. If the bank takes your home this way, they forfeit any claims against mortgage insurance. Mortgage insurance is designed to mitigate the bank’s loss so that they don’t pursue a deficiency judgement against you if the home isn’t worth what you owe. If you don’t have enough equity in the home to cover your debt, they will likely refuse the Deed-In-Lieu and pay the extra costs of foreclosure so that they can file a mortgage insurance claim. It’s a funny system.
Mortgage Modification – Some times life just happens. These are the cases where modifications really shine. If you are, for some reason, no longer able to maintain the mortgage on your home, lenders will often work with you to modify the mortgage to help you stay in the home. One way they make it work is to stretch the length of the loan to keep monthly payments down.
OK, so it’s not really an option for ending home ownership. But it is an option when it may feel like the end of home ownership is your only option.
If you go this route, be ready for paperwork. The bank is going to want an awful lot of paperwork to verify your situation and make sure that this is a need and also sustainable after the modification. It’s going to take some work on your part, but it could keep you in your home if that is what you want.
You can certainly work on the modification directly with your bank. If you aren’t sure where to start or would like some help with the process, the counselors at the Center for Financial Resources can and do help people complete mortgage modifications.
If you would like some help, you can call us at 605-330-2700 or go online to schedule an appointment.