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4. Loan modifications. This option received a boost from the U.S. Department of the Treasury's Home Affordable Modification Program (HAMP) and various changes to state foreclosure laws. Trained brokers may be able to help clients make preliminary determinations of HAMP eligibility. The program's payment-reduction-estimate calculator can be found online at sctsm.in/HAMPcalc.
5. Short refinances. These differ from loan modifications and occur when the existing lender writes down the current loan to an amount that allows a normal refinance. Removed principal can be forgiven or converted to an unsecured debt.
6. Bankruptcy. This represents the best solution for some borrowers. A proposed change to bankruptcy laws would give judges authority to impose loan modifications on primary residences, something they can already do for rental-home loans.
7. Short sales. This well-known option involves selling a property for less than the loans against it. The typically long wait for lender approval, however, often causes buyers to withdraw their purchase offers. Short sales can reduce the negative impact to distressed borrowers' credit. Lenders may require short-sellers to repay some or all of the shortage. Short sales require an attorney. Because of the liability and tax issues present, short sales should never be done based solely on the advice of a real estate agent.
8. Deeds in lieu of foreclosure. These may be an option if borrowers are leaving the house for other reasons. Lenders, however, are reluctant to accept such deeds if there is any doubt about intervening liens. A deed in lieu normally is treated as a foreclosure in terms of its effect to borrowers' credit scores.
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