Foreclosures and Short Sales
Depending on your financial situation, a short sale may be in your best interest. However, short sales require cooperation from your bank and often involve complicated legal and financial issues that can create delays and problems if not resolved in a timely fashion.
Typically, a short sale allows a homeowner who cannot afford a mortgage to sell their home for less than their original mortgage loan. For example, suppose your original mortgage loan was $500,000. A short sale will allow you to sell your home — say for $400,000 — and possibly discharge your original home loan. If a lender agrees to a short sale, anti-deficiency protections, if applicable, usually prevent the lender from seeking the difference between what you owe on your mortgage and what you sell your house for.
In the example above, suppose you paid off $25,000 of your original mortgage, leaving you with $475,000 in debt. After a short sale of $400,000, you would still owe $75,000.
Initiating a Short Sale
Lenders are not required to offer or agree to a short sale if you can no longer afford your mortgage. As such, in order to proceed with a short sale, you must first get your bank or lender to agree to a short sale. A special contract may be drawn up covering the terms and conditions and laying out any financial arrangements.
You must also make a good faith effort to find a buyer who is willing to pay the current market value for your home. Due to these issues and others, working with a professional who has experience in assisting with short sales is essential.
Leveraging Your Reasons for a Short Sale
In general, a bank or lender is more likely to agree to a short sale if they believe they can recover more money from doing so than through foreclosure or a Chapter 13 bankruptcy. The following reasons may help you leverage your request for a short sale:
• Illness in the family
• Loss of employment
• Inability to pay more than one mortgage
• Increase in an adjustable rate loan
• Failure of a closely owned business
What Are the Negative Consequences of a Short Sale?
While a short sale will have less of a negative effect on your credit than a foreclosure or bankruptcy filing, it could appear on your credit history for up to seven years. However, you may be able to negotiate with Experian, Equifax, or TransUnion over how it will appear and for how long.
A short sale can also take 3 to 6 months to finalize, which may be too long for some buyers. Lastly, if you have a second mortgage on your home, your second mortgage lender may try to delay the process in the hopes of getting more money out of you.
If you’re uncertain whether a short sale is right for you but don’t want to lose your home through foreclosure profession consultants at Stringfield & Associates today to schedule an appointment and learn how we can help you.