Short Sale vs Foreclosure

I. Many people are at the point where they can no longer make their mortgage payments  due to unforeseen circumstances; their mortgage payments have now risen to the point of being unaffordable. They may have lost a job, maybe the loan has adjusted to a higher interest rate…And to add insult to injury, the equity in the home has diminished because of a 50% drop in value due to the housing market. These are just some of the reasons people are considering walking away from their homes. But what about the consequences of a foreclosure and the impact of this decision for several years to come? The higher interest rates on credit cards and auto loans alone will cost thousands of extra dollars.

II. Consider some other alternatives. There are several governments programs created to help the homeowner faced with these decisions. They can contact their mortgage holder and try to do a work-out with them. This possibility exists but helps only a very few homeowners. Statistics have shown that in most cases, loan modifications seldom reduce the principal balance and only offer short temporary relief.

III. If you decide to let your home go into foreclosure, you may want to try the Short Sale process first. 75% of all valley home sales are Short Sales and Foreclosures. What does this mean to you? It means the lenders are working with many homeowners by cooperating in a short sale on their property. A short sale is where the lender is willing to allow you to sell your home and accept a payoff less than what is owed to them. Why would they do this? In the long run, this is a sound decision for the bank because a short sale costs the lender less money than a foreclosure. So if you qualify for a short sale, this may be the step you need to take before you let your house go into foreclosure. Some good news is the lender pays all the costs. NO COST TO YOU!

IV. With a short sale, you place your house on the market with an experienced real estate professional that specializes in short sales. You will be required to provide the lenders with your financial situation and hardship documentation (we have all of these forms). Your real estate professional will provide the lender with all the market condition documentation to support your property's value as well as communicate on a regular basis to affect the final short sale. During the marketing time to sell your house, you can remain in your home.  In fact, the lenders encourage you to remain in the home in order to keep it in good repair and free from being vandalized.  The advantage to you is your credit is impacted less which allows you to buy your next home much sooner. Secondly, depending on your circumstances, the government allows debt cancellation tax advantages for a period of time and you are relieved of this property. You move on with your life and can start over again. There are many desirable single family rental properties that you can rent in your neighborhood or school district to make the transition as easy as possible.

V. Should your property go into foreclosure, your credit will be negatively impacted more than a short sale and it takes much longer to establish a good credit rating and longer to be able to purchase a home again. I specialize in Short Sales and can be a valuable resource to you. Please feel free to call with any questions or concerns. My goal is to provide you with the information to make best decisions that are right for you and your family.

Please note that this is very general information and may not apply to your circumstances. I strongly recommend that you seek the counsel of an attorney and CPA.