In many cases, when homeowners are facing foreclosure, they feel like they have little or no options available to them. In many situations, however, this is not the case. For example, a short sale can be much more attractive to homeowner versus the property going to foreclosure. Despite this fact, many banks do not let the homeowner know that a short sale is an option.
Whether you are the homeowner or buyer, there are and disadvantages and advantages associated with both the foreclosure and short sales. To ensure the best outcome in your specific situation, you need to learn and understand the between the two options. Make sure you are able to make an informed decision.
A foreclosure is when the bank or mortgage company repossesses a home when the homeowners are not able to make the mortgage payments. Since the property is pledged as collateral for the mortgage loan, the bank has the right to foreclose on the property in an attempt to recover the amount that was loaned, plus any applicable fees and costs. After the property has been foreclosed, the bank takes ownership of the property and will look to resell the property as quickly as possible. If the homeowners have not vacated the property, the bank will go through the eviction process. Once the property has been vacated, the bank will typically complete any necessary repairs and list the property for sale with a realtor. After the foreclosure, the lender will report it to all the credit agencies. This will have a significant negative impact on the homeowners’ ability to borrow money again, until he or she has rebuilt their credit. This can take several years or longer. Since foreclosure process varies by state, you should research your state’s process. Here here is a link that will provide you more detailed information on your specific state foreclosure laws.
With a short sale, the property is sold before the foreclosure takes place and it is typically sold for less than the amount that is owed on the property. The amount owed will include the principal amount, plus any past dues payments and fees. Since many properties are in this type of situation (i.e., the amount owed is more than the proceeds from a potential sale), a short sale can benefit both homeowners and lien holders. A short sale can often avoid the long drawn out process of foreclosure and the resulting increase in fees and costs. This type of sale usually requires the lien holders to agree to accept less that the total amount owed to repay their liens. The process can be complicated since there are often multiple lien holders who all need to agree to take less than is owed. Whether you are the homeowners or the buyers, it is critical to work with an experienced investor who thoroughly understands the process to ensure that a short sale is negotiated successfully.
Foreclosure vs. Short Sale
While both foreclosures and short sales usually have negative impacts, a short sale has less of an impact on the borrowers’ credit score and worthiness. A foreclosure may impact borrowers’ credit scores by 250 to 300 points, while short sales may only impact borrowers’ credit scores by about 100 points. Typically, borrowers who experience foreclosures will not qualify to purchase another home for 4-7 years with a traditional mortgage. On the other hand, borrowers who experience short sales may qualify to purchase within a year or less. As people have struggled with the sluggish U.S. economy, many are facing financing hardships and often are not able to make their monthly mortgage payments. When choosing between foreclosure and completing a short sale, borrowers should make sure they understand all their options. Working with an experienced local real estate investor, like RVA Home Buyers, can be crucial in minimizing the overall negative impact of the hardships on borrowers.
Options When Facing Difficulties
If you are facing difficulties paying your mortgage, here are options you should pursue as soon as possible:
- Contact your lender to discuss ways that they can help borrowers.In certain situations, lenders will renegotiate some terms of the loan (e.g., interest rate, payment amount), fees) or they may allow borrowers to repay over a longer period of time.
- Ask your lender about a short sale or other programs they offer to help borrowers.With a short sale or other programs, they may forgive or reduce the amount of past due amounts and fees.
- Sell your house fast. Some lenders will show very little interest in working with borrowers. If this is the case, your best option will most likely be to quickly and usually to an experienced investor.
- Allow the house to go to foreclosure. This should be your last option and should be avoided if at all possible. As explained above, this will have a significant negative impact on your credit and ability to buy (or even rent) a home for years. A short sale is almost always better than allowing your home to go to foreclosure.
The four options listed above may seem intimidating to many borrowers since they usually have little or no previous experience dealing with this situation. If this is the case, borrowers are much better off working with an experience local real estate investor who has substantial experience working with homeowners and lenders in foreclosure situations. In Richmond, VA, contact an investor who has over 17 years of experience working with homeowners in distressed situations: