Benefits of A Short Sale Vs Foreclosure
It’s a tragic story retold millions of time across the nation. An aspiring homeowner– let’s call him Stan for illustrative purposes – and his new wife put the down payment on a beautiful 7 year old house in the suburbs. The proud new homeowners start planning their family, and before you know it they have two kids – two beautiful little girls. Things couldn’t be better for Stan and his family. Stan dreams of the day when he can pay off his mortgage and retire. Perhaps, thinks Stan, with the new developments going up in the suburbs, the value of his home will go up fast enough that he’ll be able to retire early. After all, he’s already seen his home rise nearly 50% in value in only a few short years.
Unfortunately for Stan, the housing market takes a sudden spiral downwards and the economy crashes. Stan is laid off from his corporate sales job and after 6 months of looking, he takes a telemarketing job because none of his potential employers are hiring. By now, Stan and his wife have almost eaten through all of their savings and are struggling to make ends meet. Their home is now worth half the value of their mortgage and they are struggling to make ends meet, especially with their now greatly inflated mortgage payments. Seeing that their savings are almost gone, and how he doesn’t make nearly enough to make his monthly mortgage payments, Stan starts to ponder the day when the bank will come to take their home. What will the neighbors think? What will his friends and family think? How is he ever going to get out from the mountain of debt he’s finding himself in? It seems like foreclosure, and perhaps bankruptcy, are in his inevitable future.
Short Sale Vs Foreclosure
What Stan may not realize in his moment of desperation, is that as unfortunate it as it may be to lose a home, foreclosure – and all the negative financial and psychological consequences that come with it – are not the only option. For individuals in Stan’s position, a short sale allows them to avoid a foreclosure and start rebuilding towards a new life as soon as possible. Instead of waiting for the bank to take their home, short sales allow distressed homeowners to take back control and move on with their lives.
What Is a Short Sale?
Benefits of a Short Sale
Short Sales Give You Leverage to Negotiate a Deficiency Waiver
In states without non-recourse statutes, the bank could take Stan’s home and then pursue him for the remainder of his debt – known as the deficiency – by going after his personal assets. A foreclosure gives the homeowner little leverage in negotiations. If the bank thinks it can make money by going after Stan’s personal assets after the foreclosure, it most definitely will.
But because a short sale actually saves the bank money in terms of administrative and legal costs, and it also presents the bank with a qualified buyer ready to purchase the home at a price well above what the bank could hope to get at a foreclosure auction, banks are often ready to negotiate a full deficiency waiver in a short sale. Instead of waiting for the bank to take his/her house, and then the rest of his/her remaining assets, a short sale allows the homeowner to take control, avoid foreclosure, and get a fresh start financially and mentally.
Short Sales Let You Start Over Quickly
While it may be difficult for homeowners to say goodbye to their beloved home, in order to avoid the financial and psychological toll that foreclosure can entail, it’s important to be able to get a fresh start again quickly. While the average foreclosure is a drawn-out process that averages 15 months, short sales can be completed in as little as 2-6 months, depending on your lender.
Homeowners in Stan’s position who choose to do a short sale find that after a short sale frees them from their burdensome mortgage payments, they’re actually able to rent a similar home in the same neighborhood after moving out. Relieved of a large financial burden, living comfortably under a roof in the same area, and having avoided the bulk of the financial consequences of foreclosure, homeowners are free to start to rebuild their financial future.
Short Sales Avoid the Public Humiliation of Foreclosure
Perhaps one of the greatest fears of homeowner’s facing foreclosure, is the humiliation of public foreclosure proceedings. For a hardworking, honest citizen like Stan, the thought of being evicted from their own home and having their home sold through a foreclosure auction can be a stressful, anxiety inducing experience. When your home is sold through a short sale, the listing many times looks essentially like any other listing. There are no foreclosure proceedings and no public auction.
Short Sales Can Allow You to Salvage Your Credit Score
A foreclosure vs short sale differ far beyond just the humility but a foreclosure can be a huge blow to your credit score, which can significantly affect your ability to obtain loans in the future, and will greatly raise interest rates for those loans you do obtain. With a short sale, you may still suffer some credit damage from your delinquent payments, but your credit score will take significantly less damage than it would with a foreclosure on your record in most cases. Your lender will report that your loan was “paid in full for less than the full balance”. This is highly desirable compared to the alternative.
Short Sales Allow You to Buy a Home Again Soon
After a foreclosure, you’ll be “locked-out” of obtaining home financing for a period of 5-7 years. With a short sale, this period is only 2 years. While buying another home may be the last thing on your mind as you face foreclosure, it is definitely something you will be considering a year or 2 down the road once you’re back on your feet. You’ll definitely want the ability to purchase a home again, if you so choose.
Short Sales Offer Cash Back Incentives
While it may not be the most important short sale benefit, short sales performed through the U.S. Treasury Department’s Home Affordable Foreclosure Alternatives program actually get the homeowner $3,000 cash back toward location expenses, as part of the government’s attempt to promote short sales as an alternative to foreclosure. This money is in addition to any lender specific incentives which can be up to $30,000 in some cases! Contact us today to qualify for a short sale and discuss potential incentives.
I am not an attorney and I do not play one on television. The information that I provide is for educational purposes. Anyone facing short sale or foreclosure should always consult with an attorney or an accountant with regard to legal and accounting matters.