When to Consider a Short Sale
A short sale should be seriously considered if you have fallen behind on mortgage payments due to some kind of hardship. When I say “hardship,” I’m not talking about spending too much, but a hardship like job loss, divorce, major illness, or the death of a spouse. A short sale is a better solution in terms of credit damage than bankruptcy or having the bank foreclose on the property. |
A short sale happens when an owner is behind on payments and the house is worth less than what is owed. A lender may agree to a short sale, accepting less than what is owed. This is because the lender will most likely save time and money by avoiding the expensive and long foreclosure process. In order for a short sale to be agreed upon, the homeowner must prove a hardship situation to the lender. This is done through providing tax returns, bank statements, pay stubs and other items.
A leading cause of being upside-down on a mortgage, which means owing more than the home is worth, is creative lending. Many people facing foreclosure have (ARMs) - adjustable rate mortgages. When interest rates rise, so do payments and it is difficult for many people to keep up with the increased payments. Other loan programs have allowed people to buy putting no money down. Some lenders have even offered greater than 100% financing. So if there is a financial hardship and the owner gets behind on payments, they very well may be upside-down with the lender.
There are distinct advantages for a homeowner in doing a short sale versus being foreclosed upon or declaring bankruptcy. Short sales cause less damage to credit scores and hold less of a stigma than losing the house to the bank or declaring bankruptcy. A foreclosure is even worse on a credit report than a bankruptcy. With a short sale, the only penalization on the credit report is for the missed payments.
How can a homeowner recognize if the lender may foreclose on the home? The first thing that usually happens when someone becomes behind on payments is a letter from the lender stating that the seller is in arrears. The big warning signal is getting a letter from a lender stating that unless payments are brought up to date by a certain time period, they will accelerate the loan. This means that they are going to call the entire amount owed due.
If a homeowner is facing a financial hardship and falls behind, he or she should consider the possibility of a short sale. Our agents have extensive experience with the short sale process and working with loss mitigation departments. We can help homeowners through tough times. For more information, call or email our offices.
|
