When lenders are harassing you for payment of debts and you have no immediate means of catching up your late payments, it can become a harrowing experience. It gets worse when the threat of foreclosure is thrown into the mix. What are your options in this situation? If you are willing to move out of your house but you can’t sell it for what you owe on the mortgage, a ‘short sale’ is a good option.

Short sale as a means for stopping foreclosure

A short sale generally looks better on your credit report than a foreclosure. It also means that if your house was “underwater,” meaning you owe more than the value of the home, the bank will not try to collect money to satisfy the original home loan.

What is a short sale?

A short sale is the sale of a property at a price lower than what is owed on the mortgage for the property. The proceeds from the sale are used to pay off as much of the mortgage as possible. That way, you are able to avoid foreclosure, or a forced judicial sale of the home. In order to qualify for a short sale, you must work with the lender and have the transaction approved.

Short sale becomes an option when – 

  • The home borrower is facing financial distress over a long period;
  • Modification or refinancing of the mortgage is not an option for the debtor;
  • The debt owed on the property is more than the worth of the property;
  • You have been unable to sell the home at a price that can cover the mortgage; and
  • You are no longer able to pay your mortgage over time.

The process of short sale: If you have missed several mortgage payments or if you have been sued by your lender for foreclosure then your lender has probably sent you letters about your options. Review those letters to see whether there is contact information for your lender’s default servicing/ housing counseling agents. Reach out to your lender to see what the guidelines for their default servicing programs are, including short sales.

If a short sale is an option you should get your house ready to go back on the market to ensure you can get the best possible price for the home at the highest price possible.

Your lender will probably forward you a packet of information to complete if a short sale is an option. Make sure to read the instructions carefully and complete every line of each form. Include all required additional documentation, like paystubs, bank statements and hardship letters. Some lenders would like you to write your loan number on the bottom of every page of your paperwork. It is always a good idea to make a copy of the paperwork before you send it so you know exactly what your lender received. You should also count the pages of your package and make sure that the page counts are all equal if you are sending the package by fax. If you are scanning the package in to send it as a PDF by email make sure to review the entire PDF before sending it. Many short sale packages are denied because one page of the package is missing and that can delay the evaluation period so make sure to double check your package is complete.

Hiring a short sale specialist to market the property and take care of the other complexities can ensure a smoother transition to having your short sale approved. That individual can help you set the sale price, review the offers, and generally work with the lender.

Advantages of Short sale: Again, a short sale allows the home owner to avoid foreclosure, as well as obtain freedom from unaffordable mortgage. In addition, the home owner can start repairing his/her credit earlier than a foreclosure will allow. Sometimes your lender may also give you the option of obtaining relocation assistance.

Downside of short sale: There are some downsides to short sale. It will adversely affect your credit score but not as much as a foreclosure would. Short sales involve banking institutions and collection agencies or mortgage servicers. Their bureaucratic processes can take up a lot of time. The task of finding a new residence and moving out can be daunting, especially for someone already in financial quagmire.

Don’t wait too long to begin the short sale process. Hire an attorney, contact your mortgage company, and seek the assistance of a housing counselor. They will help you make the right decision for you and your family.


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