Many are unsure what to do when this happens.

Some panic and abandon their home immediately, some will just ignore the letters and phone calls until the sheriff’s officers come a knocking, while the small percentage of the informed will begin the chess match.

You know… In the game of chess, each opponent makes a strategic move carefully watching the other’s strategy and moves.  Whatever move the first opponent makes determines the other opponent’s move.

The same goes for a foreclosure.

The first player is the borrower who makes the first move of non-payment.  The bank then makes a strategic move of beginning the foreclosure proceedings.

Now it is up to the borrower to decide what move they will make next.

Will the borrower run and quit the game or stay and figure out what tactic they can use to gain the upper hand and avoid or at least delay checkmate.

Short Sale

One way to delay this process is to begin to negotiate a short sale.  After giving the bank all of the necessary documents, they will determine if you are incapable of paying the loan on its current terms.

They also take into consideration if the house is no longer worth the purchase price.  They decide this by sending out an appraiser to determine the homes current market value.

Because these steps take some time, especially now with the banks having thousands of foreclosures on their desks, this process can take from six months to two years before a decision is made.

Meanwhile, you are living free of mortgage payments and the foreclosure proceedings is being postponed.

Loan Modification

The second strategy is a loan modification.  This requires the borrower to supply the bank with the exact same income documents, but this time to determine if the borrower can still afford a loan. They will use the documentation to modify the current loan into one that is more affordable.

The amount of the home remains the same.  Well, actually it increases due to the back owed amount and legal fees for starting the foreclosure proceedings.

However, they also increase the length of time you have to pay that loan amount.

For example, the borrower has a term limit of 30 years to pay off a loan of $200,000 in the original loan agreement with the monthly amount being $1200 at a 6 percent interest.

After the banks review, they determine that the borrower needs 40 years to pay off a loan of $250,000 with the monthly amount being $1000 at a 4 percent interest.

This can take the bank between three to six months to make a decision.

Whichever tactic the borrower decides to use, it will still take the bank from months to years to make their decision. Even after that, it would take them even more time to actually continue with the foreclosing proceedings, thereby postponing it to a nice length of time.