When homeowners are in financial trouble and can’t make the mortgage payments, at some point they will face a foreclosure lawsuit. This can be a very trying time and most homeowners don’t know what steps they need to take in order to protect their interests. Foreclosures are very damaging to the homeowner’s savings, credit, assets, and financial stability. It can also be a very emotionally stressful time.
If you’re in a financially disadvantaged position and you lack a strong defense in the foreclosure suit, you might ultimately need to sell your home in what is called a “short sale” in order to have your lender waive any deficiency judgment against you. Homeowners can choose to short sell their property to avoid having a foreclosure judgement being entered against them.
What is short selling?
The short sale option allows homeowners to sell their homes at a discounted rate on the real estate market and pay all net proceeds of such sale to the lender. This is must be done with the lender’s approval because it must agree to settle for a lower repayment amount than the amount currently due on the mortgage.
What are the benefits of a short sale?
1. Protecting your credit.
You should always be concerned about the prospect of a deficiency judgment being entered against you after foreclosure because some lenders will sue to recover the difference between the proceeds derived from a foreclosure sale and the outstanding loan amount. A deficiency judgment will be added to your credit report, which will lower your credit score. Most lenders will prefer to avoid the costs of the legal proceedings and foreclosure process with a short sale. Resolution of the foreclosure in that manner will have a lesser impact on your credit score and make it easier for you to recover from your financial problems.
2. Saves you money.
Defending a foreclosure can be a costly process for the homeowner. Most law firms charge monthly legal fees during the life of the foreclosure case. Short selling helps to avoid excessive legal fees because the homeowners and the lender can limit the lengthy and expensive foreclosure process.
3. Benefits the lender.
Ideally, the lender will like to recover all of the money due from the loan. In the real world however, the foreclosure process is long, tedious, expensive and most borrowers can only pay the loan from the value of the real estate. With a short sale, a lender can recover whatever the fair market value of the property is at the time of the short sale. The homeowner can hire a real estate agent with short sale experience who will decide the best price to make a quick sale, and then place their property on the market. Once the sale is complete, the sale proceeds are paid to the lender. This solution is very convenient, which is why most lenders are willing to agree to it.
With the short sale process, homeowners have a way to avoid a deficiency judgment, lower the negative impact to their credit score and minimize attorney’s fees and a lengthy expensive foreclosure process. Nevertheless, because short sales require lender approval and to get that approval lenders require forms to be completed, financial records to be produced and appraisals to be performed, the approval process can be somewhat daunting and confusing.