Many homeowners who are facing foreclosure and cannot afford to keep their homes are choosing the selling short sale option to avoid foreclosure. A short sale allows you to sell your home for less than you owe on your mortgage. However, you must get your lender’s approval before the transaction can close. The benefit to you and your lender is you both avoid a formal and costly foreclosure process. Also, once the transaction closes, you walk away owing nothing. It makes more sense to participate in a short sale instead of walking away and letting your home go to foreclosure. With a short sale, you don’t have to worry about the lender coming after you later for a deficiency judgment (difference between the sale proceeds and what you owe on your mortgage), as long as you negotiate that the sale proceeds satisfy your mortgage debt.
If you want to keep your home, then the selling short sale option is not the right decision for you. You should speak to a foreclosure defense attorney to find out what other alternatives are available for you to save your home. You may qualify for a mortgage modification, a deed in lieu, a refinance or other options. If you do decide to go with a short sale, then there are some things you show know.
What You Should be Aware of
- Short sales are pre-foreclosures.
- Your lender must approve the short sale.
- You may still be liable to your lender for a deficiency judgment for the difference between the sale proceeds from your home and your mortgage balance. To assure that you are not, you should negotiate in writing with your lender that they will not seek a judgment against you, and that the sale proceeds satisfy your mortgage obligation in full to them. Not every state allows lenders to seek deficiency judgments.
- You may not automatically qualify for a short sale. You must find out from your lender first if you qualify. Short sales are for borrowers who have a financial hardship and have no other assets available to use to pay their mortgage balance off.
- The process can take approximately 3-6 months and sometime a year to get approved.
- Buyers get frustrated and tired of waiting for approvals so half of all short sales fall out of contract.
- You may be eligible for the government’s new HAFA short sale program if the property is your primary residence and you meet the other HAFA guidelines. You and your lender must both agree to participate. The government will give your lender $1,500 as incentive for participating and closing the transaction, and you will receive a relocation fee from the government in the sum of $3,000. Your lender must approve the transaction in 10 days.
- Pre-foreclosures and foreclosures stay on your credit for 7 years, and can decrease your credit score by as much as 200-300 points. However, bankruptcy affects your credit worse, and stays on your report for 10 years.
Seek Help from an Attorney
Deciding what to do when you are facing foreclosure is overwhelming and stressful for most people. An attorney can help you make the right decision, and can explain your rights and legal obligations. The attorney can represent you, and negotiate a resolution with your lender.
