Foreclosures are not an end-all for those experiencing this unfortunate situation.  Here are some common myths regarding foreclosure:

• Bankruptcy is worse than Foreclosure – There are many people that may think that bankruptcy is worse than foreclosure.  Although with a bankruptcy, you can re-establish yourself within 12 months but on the other hand foreclosures will stay on your credit report for 7 long years.
• Deed in-lieu of Foreclosure – This will only have an effect on your credit report as this is a type of “settlement” on a mortgage.  In most cases, the property is still taken from the borrower, but their credit score is not hurt as much as with a foreclosure.
• Bankruptcy helps you avoid Foreclosure – Actually that isn’t right – it’s the opposite.  Bankruptcy will not help you avoid the foreclosure process.  If you do file for bankruptcy, the lender will get by with the help of automatic stay.  If the stay is granted, then the lender will attempt to complete the procedure of foreclosure and take the property ASAP.

Don’t give up if you are facing foreclosure.  There is a lot of information out there and banks want nothing more than for you to stay in the home and work out a deal.

Myth #1:  You should move as soon as possible once foreclosure proceedings start otherwise you will be forcibly thrown out on the street.

Truth: Foreclosure proceedings can take several months from the time that the first notice of default is sent and the time your home is put up for sale at the public auction.  The new owner then must follow the state legal procedures to evict you, which will require at least some notice (from 3 to 30 days) and a court order.

Myth #2: When facing a foreclosure, the best option is to do a short sale.

Truth: A short sale occurs if you can convince the lender to sell the property for less than what is owed.  A short sale will only be granted is the case of hardship has been made.  Part of the problem with short sales, is upon the close of escrow, you will give up the opportunity to live in the house for many months, payment free.

Myth #3: If your home is being foreclosed upon, there is no reason to file for bankruptcy.

Truth: If you plan on staying in your home payment-free as long as possible, then a bankruptcy could delay the foreclosure auction.  Talk with an attorney.

Myth #4: Your home won’t be sold in foreclosure while you are negotiating with the bank.

Truth: Once the foreclosure proceedings begin, negotiations with your lender must be successful prior to the date set for the foreclosure sale.  Lenders often state right up until the date of a scheduled foreclosure sale that the negotiations are on track and then pull out at the last moment.  It may be a result of disorganization.