When is a Home Foreclosure Your Best Option?

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A home foreclosure is not an enjoyable experience for anyone involved. On the part of the lender, they will undoubtedly lose money on the deal. On the part of the homeowner, it results in a lot of problems, both financially and emotionally. It will hurt your credit score and will be on your credit report for a long time. While no one goes into a mortgage thinking they will lose their home, sometimes it is inevitable. So when is a home foreclosure your best option?

Exhausted All Other Options

When you are facing a foreclosure, contrary to popular belief, you do have some options. For one thing, the bank that holds your mortgage will likely be willing to negotiate. A mortgage modification is a common way that some people avoid foreclosure. They could give you a new payment, wipe away some late fees, and possibly supply a new interest rate. Depending on the lender they may or may not be willing to work with you. If they are not willing to give you an option that you can work with, then you might be forced to go ahead and foreclose.

Another option that you can try is a private money loan. Private money loans or hard money loans are a common technique used to avoid foreclosure. Hard money lenders are willing to work with those that are in distressed situations, so you can get approved. The big thing with hard money lenders is that they want to invest in good properties. If your house is in bad shape or you are in a bad neighborhood, you might not be able to get a hard money loan. 

With a private money loan, you will also be faced with a large amount of interest and a balloon payment. If you don't think you'll be any better off two years from now, a balloon loan will not do you any good. In that case, it might be in your best interest to foreclose.

Can Not Sell

Another situation might be when your house will not sell. Let's say for example, you own multiple properties and you have a run-down old house that will not sell. If it's been on the market for several years and you can no longer afford the payments, it might be in your best interest to let it go. You will not have to worry about the payments anymore and the house is now the bank's concern. This will definitely hurt your credit, but it could be an option. At least you can take the problem off of your plate and hand it to someone else. 


Another common reason for foreclosure is a messy divorce. Sometimes when a spouse leaves a home, they completely neglect to pay their mortgage. If their name is on the house, then it may be to your advantage to move out and let the home be foreclosed. The obligation to pay the mortgage is in your ex-spouse's name and you are no longer responsible. Forget about the house and move on.