Foreclosures are a costly and painful process for all homeowners. They severely hobble a person’s ability to own a home in the future while putting them through an embarrassing and painful process in the present. However, homeowners have a tool at their disposal to defend themselves from foreclosure: short sales.
Below, we’ve prepared some foundational questions and clear answers to help you undertand short sales and whether they might be a possibility for you.
What Is a Short Sale?
Short sales are real estate deals wherein a lender agrees to allow a homeowner to sell a home for less than its appraisal value. Short sales are negotiated to convince a lender to settle for less than the debtor owes on the mortgage—in return, the lender is able to skip the costly foreclosure process and can recoup at least some of their losses.
What’s the Difference Between a Foreclosure & a Short Sale?
The primary difference is that a short sale is a negotiation made between the current homeowner and the mortgage lender. Foreclosure is a litigation action pursued by the lender against the homeowner. The dynamics of each legal maneuver means a foreclosure results in a less desirable property (both physically and economically), which is why lenders are willing to settle for short sales.
Why Would Debtors Agree to a Short Sale?
It puts debtors into a stronger financial position when all is said and done. While a short sale doesn’t necessarily let debtors off the hook for what they owe on a mortgage, it increases the likelihood that your lender won’t pursue a deficiency action against you. They may also be willing to settle your entire debt with you, provided that the short sale offers them a large enough recoupment.
In addition, short sales allow you to control the situation better. Rather than facing a team of lawyers, you’d mostly be working with a homebuyer and the lender directly. It’s also a less stressful and complex process overall.
Short sales can also mitigate the damage to their credit caused by defaulting on the mortgage, and it allows them to start rebuilding financially (and even buy a home) sooner than a foreclosure.
Why Would Lenders Agree to a Short Sale?
Very few mortgage lenders recoup their losses after a foreclosure. The cost of attorneys, real estate agents, collections, court fees, and the time spent actually selling the home means lenders are far more likely to accept a short sale offer—even if it seems far lower than the amount you owe.
In addition, foreclosures are actually highly damaging to local home values. If a mortgage lender owns or has liens against multiple properties in your area, avoiding a foreclosure (and ensuring the sale of a home that’s in better condition than one that’s been foreclosed and trashed) benefits everyone.
How Do I Begin the Short Sale Process?
Because a short sale is a deal, you’ll want your own attorney to gauge how open your lender is to negotiate. This might start with researching the values of your local area, how many mortgages your lender controls in the neighborhood, or other tactics. The first step will be calling your lender’s collections department to “scope out the landscape.”
Find an attorney who’s familiar with foreclosure alternatives. They will be able to determine if you qualify to negotiate a short sale and whether a short sale would benefit you in the long run.
Huebner Law Firm is happy to answer your questions related to bankruptcy—call (817) 576-1889 or contact us online to learn more about short sales, how they benefit you, and what you’ll need to do next.