If you are suddenly finding yourself in financial trouble, and unable to make your monthly payments, and are left with a house that you can no longer afford, that is worth less than what is remaining on your mortgage, you might be under the common impression that foreclosure, and possibly bankruptcy are your only options. Fortunately, there is an option that can help you to avoid bankruptcy and protect your credit at the same time. This is called a short sale.
What is a Short Sale?
While in many cases you can avoid foreclosure with a short sale, it is important to understand what a short sale actually is, and what it means for the person selling their property. A short sale takes place when the owner of a home is in financial trouble and is unable to make their monthly payments. In order for a short sale to take place, the amount outstanding on your mortgage must be more than what the home in question is worth. Essentially, when a short sale takes place, the owner sells the property in question for less than what is left on the mortgage. During a sale like this, all proceeds go directly to the lender, who then either gets a deficiency judgment against the borrower that requires the borrower pay back part or all of the difference between what was made on the sale and the outstanding mortgage, or the lender forgives the difference.
What does this mean for the Seller Facing a Potential Foreclosure?
The reality is that a short sale will not necessarily solve the financial problems that the homeowner is facing. However, if a short sale is possible, it can help to salvage the homeowners’ credit and allow them to avoid having to file for bankruptcy. If you are hoping to avoid foreclosure with a short sale there are a number of resources online that you can refer to in order to learn more about the process and the repercussions of doing so. It is also a good idea to contact a real estate lawyer, as well as your bank (or private lender depending on your situation). These are two additional resources that will be able to help you understand all of the options as they pertain to your specific situation.
Not all Borrowers will allow a Short Sale
If you are hoping to avoid foreclosure with a short sale, you ought to be aware of the fact that not all borrowers will allow you to do them. Think about it, a short sale does not get the lender all of their money back, they get a portion, yes, but some banks and private lenders have made it their practice to say “no” to these types of deals. Another concern with avoiding foreclosure with a short sale is that short sales do not always actually go through.
While a short sale is not a perfect alternative to a foreclosure, it is a good one, especially when you consider the alternative. If you are being faced with a potential foreclosure, consider a short sale, speak to the necessary parties, and see if it is possible. After all, it is a lot easier to improve your credit report with only a few blemishes as opposed to a complete bankruptcy.