How to Avoid Foreclosure

New housing legislation is set to help as many as 500,000 homeowners avoid foreclosure by helping them refinance into more affordable government-backed mortgages. However, many more struggling borrowers will not qualify for the programs. Luckily, there are some alternatives for these homeowners in the form of "short sales" and "deed in lieu of foreclosure" transactions. The Wall Street Journal outlined these two strategies in their article "Two Alternatives to Foreclosure" in today's paper.

These options won't keep you from losing your house or damaging your credit score, but they will both ease and slow the process to give you time. Short selling involves the borrower selling the house at a fair market value that is less than the amount owed on the mortgage and then having the lender forgive the remainder of the debt. The other option involves handing over the property to the lender in lieu of waiting for foreclosure with the lender assuming the remainder of the debt.

Both of these options allow homeowners to escape with little to no debt, but no money or house to speak of. In contrast, foreclosures can result in lenders pursuing the differential owed to them. The two also allow borrowers to face a shorter waiting period before they can obtain another mortgage. These two options can help homeowners get back on their feet quicker than they would be able to through a foreclosure.