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Short Sale vs.
Foreclosure: Which is the Better Option? |
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Losing your home to foreclosure due to an inability to
keep up with your monthly mortgage payments is one of
life’s most unpleasant experiences. It is also an event
that keeps on affecting you long after your home is
history by devastating your credit score. Regrettably,
most people cannot be 100% sure that they will remain
safe from foreclosure because they can’t foresee the
unexpected. Occurrences such as serious illness, a major
accident, divorce or job loss can happen to anyone. So
it’s a good idea to understand the available
alternatives should the worst occur.
Of all available options, foreclosure is the worst
The inevitable result of a foreclosure is the lender
taking your house. Not only will you lose your house,
but the lender can get a judgment against you for the
arrearages you owe plus his costs for the foreclosure
action. If that isn’t enough, your credit report will be
in terminal condition for many years to come, worsening
an already bad financial situation and making it very
difficult to obtain any other kind of credit. There is
no upside to foreclosure. It should be avoided at all
costs.
Consider a short sale when
foreclosure seems inevitable
A short sale is a popular option for homeowners mired
down with financial problems. In this case, you would
sell your home for less than what you owe your lender;
the biggest problem you will face is getting your lender
to agree to a short sale. In many situations, they will
not. Experts advise pursuing this option the minute you
realize that you are falling behind in your payments and
most likely won’t be able to catch up. The longer you
wait and the greater the amount you are in arrears, the
less likely it becomes that your lender will even be
willing to discuss a short sale.
Short sale has disadvantages
too
While a short sale will save you from foreclosure, it
will also have a negative effect on your credit score,
frequently lowering it by as much as 200 points. This
can be overcome more quickly than the black mark of a
foreclosure, especially if you manage to retain one or
two credit cards and keep them current. Perhaps equally
distressing, the Internal Revenue Service frequently
deemed the difference between the mortgage balance and
the amount realized from the short sale to be taxable as
income despite the fact that the debtor never saw a dime
of it. There is new federal legislation called the
Mortgage Forgiveness Debt Relief Act 0f 2007 that just
went into effect on January 1st, 2008. The new act
essentially eliminates this problem.
Almost any option is better
than foreclosure
Simply stated, do everything you can before foreclosure
occurs and do it as quickly as humanly possible. Don’t
sit back and keep thinking, “What can I do?” Instead,
consider that short sale and check with your lender
before your options become more limited.
The One Best Tip I Can Give
You: Don’t Do This Alone
We have successfully short sold many homes for
distraught and panicked owners. Ask anyone who has
been through it and they will tell you, having someone
who can work on your behalf is incredible. Facing
foreclosure is a scary thing, I know, I have been down
the path many, many times.
Don’t just get any real
estate agent to help you!
Our agents have lots of short sale experience, and we
will make all the difference. We know who to talk to,
when to talk to them, and how to handle all the
paperwork to get the deal done.
You Need An Experienced
Short Sale Agent!
We are here to help you. We can get this done, and
buy you a ton of time in the process to help you make
this transition. We have done this before and know
how to get it done right. Give me a call and I
will walk you through the ins and outs, ups, downs and
how to make this as painless as possible. We are
here for you and are on your side. Trust me, I
understand. And will be there for you every step
of the way.
Avoiding Foreclosure
If you are
having difficulty paying your mortgage on time or know
you will have difficulty in the near future, call your
lender. Your lender is your biggest ally if you are
having problems paying your mortgage, and the sooner you
reach out for assistance, the more help they can
provide.
Your lender
– also called a servicer – has a variety of options to
help you with your mortgage and avoid foreclosure. These
options include:
You can
find your lender's contact information on your mortgage
statement or coupon book.
If your
lender has called or mailed you documents, do not ignore
them. Your lender is trying to help you. Remember, when
you contact your lender early, there is a greater chance
your lender can help you with your mortgage and avoid
foreclosure.
Are You Facing
Foreclosure?
There are
resources available to help you protect your home
provided by FredieMac. Call us and we can walk you
through your options and help you understand which is
right for you.
- Attend
a Foreclosure Prevention Workshop in Your Area
- Where
to Get Help
-
Working With Your Lender
-
Identifying a Housing Counselor
-
Special Circumstances to Stop Foreclosure
- How to
Rebuild After a Foreclosure
- How to
Spot Loan Modification Scams
- Making
Home Affordable Frequently Asked Questions
Help for
Homeowners
Call us and
we will help you determine if you qualify for an
assistance program or you can use the self-assessment
tools provided on
MakingHomeAffordable.gov
to see if you are among the millions of
homeowners who may be able to benefit from Making Home
Affordable.
Beware of
Foreclosure Rescue Scams
Because
mortgage fraud has become more prevalent since the onset
of the housing crisis, be sure to educate and protect
yourself by learning how to
identify
and report mortgage fraud.
Understand Your Options
There are
many options available to help you to make your payments
more affordable or avoid foreclosure. We can help you
understand if you qualify for available options, and if
this is the best choice for you, we can help you
to learn how to discuss these with your lender,
but remember – the earlier you contact them the
more options you will have to help you. You may
not be eligible for all of these options but you and
your lender can determine how best to move forward. Time
is working against you.
Making Home
Affordable Program
The Making
Home Affordable Program provides help to homeowners who
are struggling to pay their mortgage or anticipating
trouble in the future. We can help you find out if you
are eligible for assistance
through this program.
Workout
Options
If the
Making Home Affordable Program is not an option for you,
there may be other alternatives. By working with your
lender you can determine if you are eligible for any of
the following workout options, including:
-
Refinance: If you have enough
equity in your home, your new mortgage could pay off
the old loan along with any late fees and attorney
fees. If you decide to pursue a refinance, remember
to shop around for the best terms and compare the
Annual Percentage Rates.
-
Reinstatement: Your lender may
agree to let you pay the total amount you are
behind, in a lump sum payment and by a specific
date. This is often combined with forbearance when
you can show that funds from a bonus, tax refund, or
other source will become available at a specific
time in the future. Be aware that there may be late
fees and other costs associated with a reinstatement
plan.
-
Forbearance: Your lender may offer
a temporary reduction or suspension of your mortgage
payments while you get back on your feet.
Forbearance is often combined with a reinstatement
or a repayment plan to pay off the missed or reduced
mortgage payments.
-
Repayment Plan: This is an
agreement that gives you a fixed amount of time to
repay the amount you are behind by combining a
portion of what is past due with your regular
monthly payment. At the end of the repayment period
you have gradually paid back the amount of your
mortgage that was delinquent.
-
Loan modification: This is a
written agreement between you and your mortgage
company that permanently changes one or more of the
original terms of your note to make the payments
more affordable. The President's plan also offers
loan modifications through the Home Affordable
Modification Program.
Depending
on your circumstances it may not be possible to keep
your home. But there are still options available to help
you avoid the financial and emotional impacts of
foreclosure:
-
Short Sale or Short Payoff: In
cases where you sell your home for less than you
owe, your lender may accept the lesser amount.
-
Deed-in-lieu of foreclosure: Your
lender may accept the voluntary transfer of the
title of your home back to them in exchange for
cancellation of your mortgage debt. This approach
may have tax implications for you, and it may not be
possible if there are other liens against your home.
We can help walk you through this option as well.
- A deed
in lieu of foreclosure is an alternative to
foreclosure. In a deed in lieu of foreclosure, the
property owner gives the property to the lender
voluntarily in exchange for the lender canceling the
loan. The item transferred is the deed to the
property. The lender promises not to initiate
foreclosure proceedings, and to terminate any
foreclosure proceedings already underway. The lender
may or may not agree to forgive any deficiency
balance that results from the sale of the property.
There are potential tax liabilities to consider -
an overlooked downside to a deed in lieu of
foreclosure is the possible forgiveness of the
deficiency balance. Under federal law, a creditor is
required to file a 1099C whenever it forgives a loan
balance greater than $600. This may create a tax
liability for the former property owner because it
is considered "income." However, the Mortgage
Forgiveness Debt Relief Act of 2007 provides tax
relief for some loans forgiven in 2007 through 2012.
The key issue in a deed in lieu of foreclosure is
whether the lender is willing to forgive the
deficiency balance. Read the contract carefully to
see how the deficiency balance issue is handled. If
the document is unclear, take it to an attorney with
experience in property law. An attorney's time is
not cheap, but will be a bargain compared to signing
an agreement you do not understand and are surprised
later to realize its implications.
Here is the typical (although by no means
exhaustive) list of deed in lieu of foreclosure or
short sale requirements: a) the residence must
already be on the market for a certain number of
days (90 days is typical), b) there can be no liens
on the property, c) the property cannot already be
in foreclosure, d) the offer of a deed in lieu must
be voluntary, e) for a short-sale, the seller must
have a hardship, f) the house must be priced
reasonably.
Note: The Home Affordable Foreclosure Alternatives (HAFA)
initiative, a component of the Making Home
Affordable Program, offers both short-sale and
deed-in-lieu options.
- We are
here to point out all of the options and to help you
learn more about
HAFA and eligibility requirements.
-
Assumption: This option permits a
qualified buyer to take over your mortgage debt and
the mortgage payments, even if the mortgage was
originally non-assumable.
- If
everything fails: We have a great Short
Sale success record, and seldom do we face a
situation nowhere we cant create a short sale
solution that helps everyone, but it is important
that you should understand that if the lender will
not allow a short sale or a deed in lieu of
foreclosure, foreclosure is the last option,
although it presents major problems. Foreclosure
auctions tend to bring significantly less money than
a normal sale would bring. If the sale brings less
than the amount owed on the loan, the remaining
balance of the loan is called a deficiency balance.
If the home falls into foreclosure, it is possible
to mitigate the negative impact of a deficiency
balance by filing bankruptcy. Generally speaking,
deficiency balances are treated like any other
unsecured debt in bankruptcy, meaning that they can
be wiped clear by Chapter 7, and repaid over time
through a Chapter 13. Although bankruptcy does not
sound like a positive alternative, it may be the
best solution if the mortgage lender will not allow
the home to be sold through a short sale or a deed
in lieu of foreclosure.
Lastly, I urge you to consult with an attorney
experienced in bankruptcy law to understand all of
your options to resolving your mortgage debt.
Be aware
that some workout options affect your credit rating more
than others and you should discuss all potential impacts
with your lender.
We are here for you. To help get you the best
solution for your unique situation.
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