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- Wellington, FL 33414
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Short Sale vs. Foreclosure
What is a Short Sale?
A Short Sale is A Short Sale is basically a "forgiveness of debt." It is the circumstance where a home must be sold, but currently it is worth less than the amount owed to the bank/lender on the current mortgage(s).
For the most part, homeowners who can no longer make mortgage payments, commonly due to a job loss, relocation, divorce, illness or other hardship, must sell their home quickly or face foreclosure.
One option is to do nothing and not make your mortgage payments. That's a worst-case scenario because it impacts your credit rating more severely than anything else possibly can.
Another option is a Short Sale. You must contact the lender, let them know about your hardship and ask them to accept less money than you owe.
A short sale involves a lot of paperwork, time and effort and it is best if you have a real estate agent or someone knowledgeable to help guide you through the process and give moral support. A lot of stress is involved.
So first, you must find a real estate agent with SUCCESSFUL Short Sale experience and put the home on the market, find a buyer, and get a bona fide offer AND be sure the financing is solid and the buyers able to close the deal. Once that has been accomplished, you submit the executed contracts and necessary paperwork to your lender for a decision. This could take a while because there are several decision makers involved.
The first step is to contact your lender (phone number on your monthly mortgage statement) and ask for the Loan Service or Loss Mitigation Department. Keep copies of everything you submit, and keep notes about all conversations.
Some lenders will ask for information up front, while others are so inundated with Short Sale requests, that they will insist on waiting until a buyer has been found. A Contract for Purchase with Short Sale Addendum must be signed by both the Seller and Buyer, which is ultimately subject to the lender’s final approval. The lender will ask you to submit a financial statement. They want to know that you really don't have the financial assets to repay the loan after you sell the home.
Your lender isn't usually your lender. They just service the loan for your actual lender, called the investor. Your paperwork is submitted to the investor for a decision.
Also, if, when you initially received the mortgage on your home, your down payment was less than 20%, you were required to pay Mortgage Insurance (MI) or Private Mortgage Insurance (PMI). If you had mortgage insurance on the loan, there is another decision maker in the process. Mortgage insurance covers lenders in the case of loan defaults. That way they can justify making high LTV (loan-to-value) loans.
If the investor and the insurer both agree, your short sale is approved, and you can sell your home.
The closing costs are usually borne by both the lender and the prospective buyer at closing. The Seller cannot realize any financial gain as a result of the Short Sale.
While a short sale will save you from foreclosure, it will also have a negative effect on your credit score, frequently lowering it by as much as 200 points. This can be overcome more quickly than the black mark of a foreclosure, especially if you manage to retain one or two credit cards and keep them current. Perhaps equally distressing, the Internal Revenue Service frequently deemed the difference between the mortgage balance and the amount realized from the short sale to be taxable as income despite the fact that the debtor never saw a dime of it. There is federal legislation called the Mortgage Forgiveness Debt Relief Act 0f 2007 that just went into effect on January 1st, 2008. The new act essentially eliminates this problem.
