The downturn in the economy has affected us all. Unfortunately, it has left many homeowners with the inability to make their current mortgage payments. Industry experts predict that short sales and foreclosure will effect upwards of 70 million homeowners. You are not alone. There are alternatives to foreclosure.
A short sale is a sale of real estate where the holder of the mortgage on a property will allow the property to be sold and accept less than is owed. This has given homeowners a viable alternative to foreclosure. When a lender approves a short sale, very often they will forgive the deficiency balance that is owed to them, but this is not always the case. They may also:
- Require a cash contribution
- Require a small promissory note or a portion of what is owed
- Reserve their right to pursue the deficiency balance
While in most instances the debt will be forgiven, even if it is not a short sale is still a better option. First and foremost, your deficiency balance is fixed and much less after a short sale when compared to a foreclosure. A foreclosure forces the lender to incur legal fees, property preservation, maintenance and carrying costs – all of which is added to what you owe the bank. When this is coupled with a lower selling price, you could wind up owing the bank 50% or more when you compare the deficiency resulting from a foreclosure rather than a short sale. A short sale also allows you to negotiate the deficiency with the bank. This all adds up to a quicker recovery for you and your family.
Short sale approval requires financial hardship and a sale of your property for fair market value. The sale must also be an ‘arms-length transaction’. This means that you cannot short sell you property to family members or anyone else with whom you are associated.
The biggest misconception is that you have to be late on your mortgage. This is not true. Late payments will have a significant adverse effect on you credit rating and may lead to foreclosure. We need to demonstrate to the bank that default will occur based upon the hardship. Typical hardships include divorce, job loss, pay reduction, increased living expenses, reloacation and any other factors that affect your ability to pay your mortgage.
Call for a free, confidential consultation. We have handled over 1,000 short sales to date and have the experience you need to help you through these difficult financial times.