Short Sales
Short Sale Versus Foreclosure
Short Sale
In these uncertain times, many people are wondering what they can do if they have no equity in their home and find themselves unable or unwilling to make the payments toward their mortgage. The answer is to consult with a knowledgable realtor experienced with short sales and the foreclosure process.
The term "short sale" means that the homeowner/borrower owes the lender more than the current market value of the home before or after paying the costs incurred to sell the home. The majority of the time these sales are far from "short" in the length of time it takes to close escrow. Unless the borrower can come to escrow with enough money to bridge the gap between the purchase price of the new buyer, payoff owed to the lender and the costs associated with selling the home, the short sale will affect his credit. Here is how a short sale works when the seller has no money to bridge the gap...
1. The property is listed for sale and an offer comes in subject to lender approval.
2. The homeowner has prepared all necessary paperwork that his lender will want to see in order to consider the offer (with his realtors help) and approve the short sale. The paperwork is submitted to the lender along with the offer. This is called the "short sale package"
3. The lender processes the package.
4. The lender orders an appraisal and/or a Broker Price Opinion.
5. A loss mitigation specialist is assigned and the whole package is reviewed.
6. The lender agrees/disagrees or proposes a counter offer.
7. Negotiation continues until an agreement can be reached.
Once the approval is given from the lender for the short sale, escrow is opened and continues just as it would any other sale.
Foreclosure
The foreclosure process starts out much the same way as a short sale with the homeowner realizing that he is unable to continue making his mortgage payments. Instead of listing his home for sale, the payments are not made and the bank begins the foreclosure process which can take approximately 4 months or longer. Once foreclosed, if the owner refuses to leave the property, a sheriff will come to the property, evict the owner and the lender will change the locks and begin to prepare the property for sale.
Short sales and foreclosures both negatively affect the credit but our belief is that a short sale has less of an affect on credit. In our experience, a short sale puts the homeowner in control of the whole process and with an experienced real estate team, can limit the negative affects on his credit.
Another option before considering a short sale versus foreclosure is a loan modification. In order to request a loan modification, you will need to communicate with your lender just as your realtor would for a short sale. The package is basically the same with the exception of an offer since the property is not for sale. The process can be time consuming, frustrating and, if not handled properly, can end up in foreclosure in the end.
We always advise our clients when contemplating a short sale or foreclosure to consult with an attorney and/or tax advisor to discuss their specific options prior to making any decision.
