A short sale and foreclosure can present different advantages and difficulties regardless if you are on the buyers or sellers side of the transaction. It’s important to understand your options when pursuing a short sale or foreclosure.
Foreclosure represents the legal option, which allows any mortgage lender to satisfy the outstanding balance on the mortgage loan; as stipulated in the mortgage contract. The process usually involves the forced selling of the house at public auction, with the proceeds being applied to the mortgage debt.
Besides dropping your credit score by as much as 200 to 300 points if you are forced to give your home up to foreclosure; this process will impact your ability to purchase a new home and obtain other loans such as car loans or credit cards.
You shouldn’t give up and let the lender foreclose on your home without understanding all of your options and their consequences. If you are behind on your mortgage payments, already defaulted on your loan, or facing foreclosure, there are some alternatives that could help you avoid a catastrophe and prevent foreclosure. No matter if you decide to try and work it out with your lender, qualify for a government sponsored foreclosure assistance program, file for bankruptcy, take charge and try selling your house as is by yourself, reinstate your loan; whatever it is that you decide you should act promptly.
There are two other alternatives that you might be able to work out with your mortgage company in order to avoid foreclosure; one of them also known as a “short sale” is the agreement of the lenders allowing borrowers to sell their homes for less than their loan amount. Don’t be discouraged if your lender does not agree to the short sale, you can still negotiate a “deed-in-lieu of foreclosure,” In this case, the borrower conveys all interest in a real property to the lender in order to satisfy a loan that is in default and avoid the foreclosure proceedings.
You should also take into consideration the programs implemented by the U.S. Administration to assist eligible home owners with loan modifications on their home mortgage debt. You could lower your mortgage payment up to 31% of gross income through the Home Affordable Modification Program (H.A.M.P.). The national Home Affordable Refinance Program (HARP) has also been created to help home owners lower their mortgage value and it was meant to aid those that are current on their mortgage payments but have little to no equity in their homes. In case you have recently lost your job you could seek assistance from the Home Affordable Unemployment Program (UP). A program that provides assistance to unemployed borrowers by reducing or even suspending your mortgage until your re-employment chase is over or at least for 12 months.
A short sale is usually used as an alternative to foreclosure mainly because it mitigates additional fees and costs for both the creditor and borrower. The negative impact on your credit score will be smaller in a short sale than in a foreclosure.
With a short sale, you may have the option to sell your home for less than the amount owed on your mortgage. By doing this, you may be released from the obligation of paying back your primary mortgage under its original terms.
Before listing your property for sale you should contact your mortgage lender and determine their requirements. Some lenders might require that you have already entered into a contract for selling your house, however, there is a growing trend for lenders to pre-approve short sales.
Documentation and eligibility criteria for short sales vary depending on specific lender and investor guidelines. Generally, you must prove that you are financially incapable of paying the loan. The lender will consider this when determining the costs of accepting the short sale versus foreclosing.
It is possible that even if you sell your home you still owe the unpaid difference, plus interest and penalties, to the lender also known as the “deficiency”.
Take into consideration your tax obligations. Many times there can be a substantial tax obligation after a short sale has occurred. A short sale in which the debt is forgiven is considered a relief of debt and may be accounted as income for tax purposes. The debt is calculated as the difference between the mortgage balance and the selling price. Not only does the lender have a reporting obligation, but the borrower is also obliged to report this liability on their tax return for that year. Failure to do so can lead to important repercussions: a 25% underreporting penalty and an increased audit period.
Until recently, a seller had to field offers on a property and then check with the lender, who could approve or turn down the offers. Through the Home Affordable Foreclosure Alternatives, or HAFA, program that has been set in place by the federal government in 2010, the seller has a little more help with the short sale process.
The HAFA program was put together to give homeowners the opportunity to not go into foreclosure. If your house sale closes as a HAFA transaction, you will entirely be forgiven of the debt including the deficiency that lingers after the debt. In this case, the mortgage lender will not be able to take any legal action against the outstanding mortgage debt.
As part of the negotiation process, you could ask that the lender not report adverse credit to the credit reporting agencies however the lender is under no obligation to accommodate this request.
As you can see the short sales terms keep developing and they are filled with distinct impediments. It can be a difficult process however if you are correctly informed selling your house can go smoothly.
If you are facing financial difficulties I would personally recommend selling your house as is to a home cash buyer. There are several advantages in selling your property this way:
A faster sale could be the best solution compared to all the other options presented above or to the typical route of selling your home. If you are ready to skip the stress and anxiety of going into foreclosure or through a short sale give us a call at (913) 701-3838 or fill out our form and will get you a fair cash offer within 24 hours.