Watching the Chicken Little media stories about the real estate market, you'd think everyone is about to lose their house to foreclosure. In reality, the real estate market is still strong in many parts of the country. There are cities and areas that are struggling due to problems in specific industries or because of a correction in the market but, for the most part, the housing market is fine.

The increase in foreclosures that you see reported is primarily within the subprime market. A few years ago banks started lending money to people who should never have been given a mortgage — they had bad credit or no credit and little or nothing to put down. The lenders decided to do this because they put crummy terms on the mortgages, such as huge prepayment penalties, adjustable rates, very high interest and three-year balloons — in which the entire mortgage comes due in 36 months! The subprime mortgages were very profitable for the lenders because of the high interest rates.

But, when the rates started adjusting, the people couldn't afford the houses. If you have an adjustable rate mortgage, refinance it if you can. But if you can't refinance and you can't afford the payments, then you have to get out of your house. You may be panicked; you may have lost hope, but there are other options before you give in to foreclosure.

The best option is that you sell your house for at least what you owe. If you have to sell it for less than you owe but you can take out a loan for the difference, do it. That's better than continuing to struggle to make the payments.

The next best option is a short sale. It makes a black mark on your credit history, but it's better than a foreclosure. In this case the mortgage company agrees to take less than
what you owe. You'll need to be able to show the mortgage company what comparable houses in your area have been selling for, but a realtor can help you with that. Make sure that you get in writing that the mortgage company is accepting the short sale "without recourse" — meaning they will not come after you for the difference in what you owe and what you will get in the sale.

Another option is to negotiate for a deed in lieu of foreclosure. This is basically a voluntary repossession. The bank agrees to take the house back instead of foreclosing. Again, make sure you get in writing that they are doing this “without recourse.”

All of these options are better than foreclosure. If the bank forecloses, they will sell your house at auction and then come after you for the difference in what you owe. It damages your credit, you have nothing to sell and they chase you for the bill. Do whatever you can to avoid it.

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Dave Ramsey's financial advice appears regularly in Quick & Simple. He is the host of the nationally syndicated radio program The Dave Ramsey Show and the TV program The Dave Ramsey Show on Fox Business Network. He's also the best-selling author of The Total Money Makeover and Financial Peace Revisited.