Everyone knows what foreclosure means – it’s the stuff of nightmares for grownups and any homeowner. But if you are facing a real estate market crash, or find yourself in circumstances that make it extremely difficult to make mortgage payments, don’t just resign to foreclosure.
You still have another option: it’s called short sale.
A short sale is a transaction wherein the bank allows a delinquent homeowner to sell the home for less than what is owed. You’d think that the bank will be at a loss here, but if you put it into perspective, this process will actually end up better for the bank.
The process of a short sale involves:
- The delinquent homeowners find an agent to work with
- Agent puts the house on the market with a substantial discount
- When it sells, bank gets paid quickly
On the other hand, if a delinquent homeowner is unable to pay, the bank’s other option is to slap him/her with a foreclosure suit. This route obviously is ugly, long and stressful for all parties. Plus, the burden of maintaining a foreclosed home on a long-term basis will rest on the shoulders of the bank.
Other factors, such as the health of the real estate market nationally and locally, will also have to be taken into consideration. These are the reasons why you’d think that a short sale is a loss for the side of the bank, but this process actually saves the bank a lot of money, resources and time when compared to a foreclosure suit.
Benefits of short sale include:
- Your credit remains unscathed. A foreclosure would definitely ruin your credit and you lose all the benefits that come with a good credit rating.
- It saves you money. Foreclosure can cost you $7,000 upwards, but will depend on a case-to-case basis.
- It benefits your local housing market. If you have friends within your neighborhood, you’re doing them a favor if your house doesn’t go into foreclosure and subsequently reduce property values in the area.
- It gives you some control over your property. You are in a situation where you might feel you’re losing control over your mortgage payments or the possibility of a foreclosure. Opting for a short sale gives back some of the control since you can participate with the sale from choosing the agent to negotiating with a buyer.
Disadvantages of a Short Sale
Here’s where you, as the former homeowner (and bank borrower) would think twice about a short sale:
- You aren’t actually absolved from your debt incurred with your original mortgage. Because a short sale would often have an amount much lesser than the home’s value, you would need to pay the different in the amount that was paid and the amount of your original loan. Sometimes, if you miss payments for this, the bank can still sue for a deficiency judgment.
- You’ll need to pay commissions to agents and other third-party provider. Getting the services of an agent isn’t free, so expect to shell out some money as well.
No homeowner sees himself/herself facing foreclosure when they buy their new house. Unfortunately, things happen (some within our control, others not).
The good news is you still have options, such as a short sale. But if you feel this route isn’t favorable to your situation, talk to us. You might be able to sell your house for cash with amounts higher than what you’d get on a short sale.