how to get out of foreclosure

How to Get Out of Foreclosure When You’re Short on Cash

Fewer people are foreclosing on their homes these days. In fact, foreclosure activity dropped to a 12-year low in 2017.

At the same time, though, there are still hundreds of thousands of foreclosures occurring each year.

Are you currently facing foreclosure? Are you unsure of how to avoid it without spending a lot of money you don’t have?

If you’ve been wondering how to get out of foreclosure, keep reading. Some effective strategies you can use even when you’re short on cash are explained below.

Look for Ways to Raise Extra Funds

If you’re not too far behind on your payments, you might be able to scrape together the funds to avoid foreclosure by implementing some of these tips:

Cut Expenses

Start by eliminating all “extras” from your budget. This includes cable TV, a gym membership, your expensive cell phone plan, your second car, etc. Anything that isn’t absolutely necessary should go.

Sell Your Belongings

Sell anything of value that you don’t absolutely need. This includes electronics, a second car, musical instruments, collectibles, jewelry, etc. Sell these items in a yard sale, on Craiglist, or at a local pawn shop.

Look for a Side Job

You might be able to earn extra money by picking up a side job with a company like Lyft or Uber. You can also look into babysitting, dog walking, or delivering food for GrubHub. There are tons of gigs out there you can use to earn extra cash.

Withdraw from Your Retirement

Finally, you may also want to consider withdrawing money from your retirement. If you have a Roth IRA, you can do this without incurring any penalties or taxes.

If you have a regular IRA or 401(k), though, keep in mind you’ll have to pay taxes and early withdrawal penalties on the money you take out.

The money can be worth it, though, if it allows you to get caught up on your house payments and avoid foreclosure.

Consider Refinancing

If, after taking the above steps, you’re still short on the money you need to avoid foreclosure, consider refinancing your mortgage.

By refinancing your home loan, you’ll experience very little impact on your credit score. You’ll also get a more affordable loan with lower monthly payments.

Of course, you also get to continue living in your home, which is almost always the end goal when you’re facing foreclosure.

You can talk to your lender about refinancing your home loan.

There are also several programs that help to simplify the process, including the Federal Housing Authority and the Home Affordable Refinance Program.

Talk to Your Lender

If refinancing isn’t an option for you, there are several other plans you can use to improve your financial situation and avoid foreclosure, including the following:

Loan Modification

With this approach, your lender modifies aspects of your loan (interest rate, type of interest, term length, etc.)


A lender might agree to reduce or suspend your mortgage payment for a certain period of time while you get back on your feet (find a new job, go back to work after being on disability leave, etc.).

Look into a Short Sale

If you can’t figure out a way to stay in your home, you may want to consider a short sale.

A short sale involves selling your home for less than the amount that you have left on your mortgage. The lender takes the money from the sale and you’re able to walk away and start over again.

In some cases, you can’t get as much money as you need from your house. Lenders will often accept whatever you can get, though. Even though they lose some money, they get to avoid the expensive and time-consuming foreclosure process.

How to Get Out of Foreclosure with a Short Sale

Are you interested in using a short sale to get out of foreclosure? If so, you’ll have to follow these steps:

Understand the Consequences

First of all, it’s important to understand the consequences of a short sale. For example, a short sale will negatively impact your credit score (although, not as much as a foreclosure will).

There may also be tax consequences. The IRS typically considers canceled debt from a short sale to be taxable income.

For example, if you sold your home for $150,000 and owed your lender $200,000, there would be a deficiency of $50,000. If the lender forgives that $50,000 debt, they will issue a tax form known as a 1099-C. This money is then considered taxable income to you.

Contact Your Lender

If you’re aware of and accept the consequences of a shorts ale, start by contacting the loss mitigation department of your bank.

They’ll have you fill out an application and some other paperwork. You’ll also have to provide documents detailing your financial situation.

List Your Home

If your lender decides that a short sale is the best option for you, you’ll have to put your home up for sale. Once you get an offer, you’ll take it to the lender in order to have your short sale approved.

It can take quite a while for a short sale to be complete, especially since you have to go back and forth to the bank after getting an offer. It may be a time-consuming process, but most people find it worth it to avoid foreclosure.

Read the Fine Print

Finally, be sure to read through all the paperwork thoroughly before agreeing to anything.

Lenders don’t always accept the proceeds from your short sale as a full payment of your home loan. Make sure that your lender will accept to this before you start the short sale process. That way, you won’t be in for any unpleasant surprises later on.

Want to Learn More about Short Sales?

Do you want to know more about how to get out of foreclosure with a short sale? Or, do you just want to learn more about short sales in general?

Either way, we have resources for you.

Check out the short sale archives of our blog today to learn everything you need to know about the short sale process, including information on how to use a short sale to avoid foreclosure.

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *