Naturally you want to avoid foreclosure, so make every effort to find a buyer who will offer to pay at least what you owe your lender. Unfortunately though, this solution is not easy to come by and usually not timely enough to satisfy the mortgage company.

If you receive an offer that is for less than what you owe your lender, your lender can actually block the sale. Yet you can approach your mortgage company about a “short” sale or deed in lieu of foreclosure. (A short sale of property is one in which the sale proceeds won't cover the amount owed on the loan and the lender agrees to forego the rest. To qualify, you must occupy the property.) Many lenders will agree to a short sale, but some may require documentation of any financial or medical hardship you have experienced before agreeing to a short sale.

If you must sell your property, have three agents from different offices do a comparative market analysis.  It's free, and you'll know the true value of the home. You can also check out recent prices of comparable properties on web sites such as www.domania.com.

Another option is to simply execute a deed giving the property back to the mortgage company. You do not need to actually qualify for a deed in lieu of foreclosure.

The mortgage company may have told you that you didn't "qualify" (mortgage companies typically don’t want the property back), but they cannot stop you from executing a deed in the company's favor. The difference between the house's value (the amount for which the company sells it) and the total balance owed is called a deficiency. Unless the mortgage company writes off the deficiency, you are still liable for that amount.

If the mortgage company writes off any part of the deficiency, you’ll receive an IRS Form 1099-Misc next year and that amount will have to be reported as income. However, you can avoid this if you can show that at the time of the write-off, your debts exceeded the value of your assets. Have an accountant or professional tax preparer assist you before the April 15 filing date.

If you want to negotiate with the mortgage company, call 800-MYVESTA or visit www.myvesta.org (formerly Debt Counselors of America).

Foreclosure Proceedings
Most lenders don't start foreclosure proceedings until you've missed four or five payments, but it varies from state to state. Before taking back your house, most lenders would rather rewrite the loan, suspend principal payments for a while (have you pay interest only), reduce your payments or even let you miss a few payments and spread them out over time.

If your loan is insured by a federal agency, such as the Department of Housing and Urban Development (HUD) or the Federal Housing Administration (FHA), the lender may be required to assist you in preventing foreclosure. For additional foreclosure information, visit: HUD's Website.