Short Sales And Other Information

What is the definition of a short sale?

 

A short sale occurs when a bank agrees to take less money for a property than what the amount owed on the mortgage. This usually occurs when market conditions cause home values to decline. Banks generally do not want to own real estate, and would rather settle for less money from an able buyer who will take the property out of the bank's portfolio.


A short sale is sometimes the best course of action when homeowners who do not have equity in their homes are delinquent in their monthly mortgage payments or in default of the terms of their mortgage. However, there are several alternatives to short sales of which homeowners should be aware. For instance, it is occasionally possible to rework or recast a mortgage with your lender, especially if there is equity in the property, and sometimes lenders provide a grace period to make a late payment.

If a mortgage servicer or lender has not heard from homeowners who are at least three months behind on payments, then the borrowers are in serious jeopardy of losing their home and being stuck with additional costs and fees. That is why all homeowners should be aware of the concept of a short sale, as well as the following short sale alternatives.

 

Please note that this is not a complete list of all alternatives.

Involuntary Foreclosure

This is the process by which the lender takes back the property and then tries to sell it. There are two typical types of foreclosure: 1) Judicial Foreclosure - this is rather common, provides the homeowner a level of protection through the court proceedings and is regulated by state law, and 2) Power-of-Sale Foreclosure - this is used in deed of trust situation, is less regulated, and provides fewer protections to the homeowner. There are serious credit repercussions to allowing involuntary foreclosure on your home, much more so than with a short sale. Often the home sells for a lower price during a foreclosure sale or auction, potentially leaving the homeowner with an additional obligation for the deficiency amount. Additionally, the homeowner may be responsible under its agreement with the lender for the costs of the foreclosure process, which can often be tens-of-thousands of dollars. Homeowners should seek to avoid involuntary foreclosure.

Deed in Lieu of Foreclosure

This is considered a "voluntary foreclosure," but it can damage your credit every bit as much as an involuntary foreclosure or bankruptcy. However, this process allows homeowners to avoid public notice of a foreclosure sale. This is the main benefit over involuntary foreclosure. Sometimes, the lender will even work with a real estate agent to complete a sale of your home. However, lenders are not obligated to accept your home's deed in lieu of foreclosure and you may be responsible for additional fees and costs associated with this process. Many lenders will not agree to this proposal because it transforms them from lenders to property owners with all the associated responsibilities that go along with home ownership.

Bankruptcy

This is the last resort, if your home cannot be sold. It is possible that you could come out of bankruptcy still owning your home, but bankruptcy will severely damage your credit for at least seven (7) years and you will lose control of your finances. Foreclosure proceedings on a home are usually stopped until bankruptcy is resolved. Contact a bankruptcy attorney if you are contemplating this course of action. If you have substantial other debts unrelated to home ownership then this could be something to consider. However, most people may not need to consider bankruptcy if the cause of their financial hardship can be alleviated by the sale of one or more of their real estate properties.