Short Sale or Foreclosure?

Short  sales are uniquely beneficial to all parties involved: homeowners, lenders, real estate agents and investors alike.  By accepting a short sale, the lender decreases their potential for loss and reduces the time to receive payment by a number of months.  A short sale also minimizes the costs associated with foreclosures by the lender.  Homeowners avoid permanent damage to their financial record while buyers benefit  from a good deal on their newly-purchased property.  Real estate agents are compensated for their work to get the property sold and investors, when involved, can receive an increased payback on their investment by making improvements to the home and later selling it at a price that matches its increased value.

Of all available options, foreclosures 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 it 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 you home for less that what you owe your lender;  the biggest problem you will face is getting your lender to agree to a short sale.  Utilizing a Realtor who is trained and experienced in dealing with the Bank and their Loss Mitigation Department is vital to your success.  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,  if you are indeed behind in your mortgage payments, but will avoid a Foreclosure on your credit report and you can usually purchase a home within 4 years of the short sale.   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 of 2007 that went into effect on January 1, 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:  Use a Qualified, Full Time Realtor