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Forced to Move: Foreclosure or Short Sale?
If you are in a position where you are forced to move, say because of a job transfer, health reasons, or pending foreclosure, and you can’t sell your home, what are your options?
In reality, you probably can sell your home, just not for the amount you would like to. In the current market, you could sell the home for below market value and take a loss, but in some cases home values have dropped so much that the current value is less than what you may owe on the home!
Some people just walk away from their home and start over, but this is one of the last courses of action to take. Walking away will dramatically affect your credit score and it may take years to repair the damage.
One possibility for solving this matter is to contact your lender. The bank does not want to bother with foreclosure. They are not in the real estate business and foreclosures take a lot of legal effort to conclude. If you tell your bank that you cannot pay the monthly costs, they may be willing to help you with a short sale on your property.
In order to back this request up, you will need to have a copy of a financial statement that you have drawn up. This will show your assets and wages and will prove to them that you have no more money left to pay the mortgage.
You will also need a current market evaluation of the property from your real estate agent, and an offer from a prospective buyer. If you don’t have this, you will need to persuade your bank that you can arrange all this.
The crux of a short sale is that you must genuinely be without any assets that could be used by the bank as capital. With a short sale the bank is going to absorb the cost between the amount the home is sold for and the amount owed by the homeowner on their loan. Because of this they must make sure that the owner is not hiding assets and trying to deceive the bank.
Here is what happens: your mortgage is worth $400,000. Your house, at this time, is only worth $370,000. You will lose $30,000 plus costs. If a buyer can be found, the Lender will ‘write off’ his loss of $30,000 and you will leave the house behind you. This will also have a negative impact on your credit score, but not nearly as bad as the hit a foreclosure can have.
You will have to talk to the Loans Department of the bank concerned. Once this is done, your real estate agent will start to prepare the deal.
At this point, both you and the buyer will have to be patient. There are several people involved in the decision over whether to accept the prospective buyer’s offer or not. Firstly, the bank is probably only the middle man, so he has to get agreement from the actual ‘investor’ who owns the note of your loan. Assuming you have mortgage insurance on the loan, the next step is to get the Insurance Company to agree.
Short sales can take even longer in cases where there is a second mortgage held on the property; they also want ‘a cut’ of the capital released; sometimes having the second mortgage on a property makes the deal too difficult to negotiate.
Although it may not be the ideal solution, a short sale can help many who are stuck in a situation will little other recourse. Although there is a hit taken to your credit score, it is far better and easier to repair than walking away from the home and having it go into foreclosure.
Tags: california short sale, forced to move, loan modificaiton, mortgage modification, stop foreclosure