What Is a Short Sale? ⋆ Short Sales Certified

Short sale is the process through which your mortgage company agrees to settle for less than what is owed to them. This can be a win/win for the lender and the homeowner. Lenders may be willing to do this as an alternative to the expensive and time consuming process of foreclosure, auction or bankruptcy. For the homeowner a short sale is typically less damaging to your credit than a foreclosure. We specialize in these types of transactions by re-negotiating the loan amounts of your property with your lender(s) allowing you to resell the house at a price suitable for current market value. At the end of the day you can possibly walk away with the accounts settled and move on with your life. Many homeowner’s whom are facing foreclosure tend to be “upside down” on their property; meaning they owe more than the property is worth, or cannot afford to sell their property and pay all costs associated with selling. This is when a short sale is most appropriate.

Why Short Sale?

The answer is simple, in order to avoid a FORECLOSURE. A foreclosure can be extremely damaging to an individuals credit report and have long-term effects on any individual seeking credit for up to several years. Since we live in a credit driven society, keeping a good credit rating can save a family thousands of dollars in attractive finance rates for vehicles, home mortgages, and other large items. A negative credit report and poor score can affect everything you do from renting an apartment to buying a car.

Short Sale vs. Bankruptcy?

When faced with foreclosure some individuals may turn to bankruptcy as an option to solving the problem. Filing for bankruptcy will consolidate your debt and can wipe out your liabilities, but it will not prevent an eventual foreclosure if the bank has already started the process. A bankruptcy only delays a foreclosure. However, if all you need to do is delay a foreclosure and there is little to no other major outstanding debt which needs to be settled, then there are other methods which may be more suitable. Trying to conduct a short sale while in bankruptcy requires strategy and a plan. It is best to consult with a knowledgeable bankruptcy attorney prior to making any decision in order to gain the proper information and make an appropriate plan. If your home is the only debt that is creating an uncontrollable situation for you, a short sale option is likely your best bet VS. a bankruptcy. If you need additional help with debt consolidation we can refer you to a local bankruptcy attorney.

Deficiency Judgments and How The Banks Handle The Loss

What will happen to the loss or debt owed to the mortgage holders and lien holders. What are the homeowners’ liabilities from this loss/debt after the short sale transaction is completed? This is the most common question we receive from homeowners about their short sales and it’s a good one. The loss is called the “deficiency” amount of debt owned, and there are several new laws in California pertaining to the way banks handle deficiencies. As we are not attorneys or tax professionals, we always recommend you speak with your own tax or legal counsel to ensure that you are given the correct information for your particular tax/legal situation.

Short Sell VS Foreclosure

Short Sale

In a short sale, the homeowner initiates the sale of his home. For a short sale to take place, the house must be worth less than the amount the homeowners owe, and they must be behind on their mortgage so much that they don’t think they can catch up. Potential buyers will deal with home sellers during the short selling process, but all details of the process must be reviewed and approved by the lender. A short sale cannot take place until the lender has given permission to do so. Since it all depends on the lender, the short sale process can be long and unpredictable – even if the homeowner and prospective buyer agree on terms.

Foreclosure

On the other hand, in a foreclosure situation, the bank takes ownership of the home after the buyer is unable to make the payment. This process is initiated by the lender. The lender will force the sale of the home to try to get back as close to the original loan amount as possible.

Most of the foreclosed homes have already been abandoned, but if the homeowners still live in them, the lender evicts them during the foreclosure process. The lender will then try to sell the property through an auction or through an estate agent.

The foreclosure process usually takes less time than a short sale as the lender is trying to liquidate the home as quickly as possible.

Which Is Better?

For homeowners, short selling is usually better than foreclosure for two reasons. First, short selling is voluntary (where foreclosure is compulsory). Second, after an acquisition, most people have to wait the standard seven years before getting another mortgage (while a short sale can make you wait at least two years). (1)

Most lenders would prefer a short sale to the takeover process as this allows them to get back as much of the original loan as possible without an expensive legal process. In fact, in most cases, the homeowner and lender will only seek foreclosure after trying to sell the home through a short sale process.