Short Sales as a Way to Avoid Foreclosure

Many homeowners think that if they fall far behind on their mortgage payments, their only option is foreclosure. However, if you’re at risk of mortgage foreclosure, you might have other options. You may be curious: What is a short sale? A short sale refers to when you sell the home for less than you owe on the mortgage. This option may help you avoid foreclosure and settle your debt with the lender. Here’s a look at short sales and how they work.

Being faced with losing your home to foreclosure is devastating. While you may not be able to keep your home, you can take strategic steps to minimize credit damage and maximize your chances of qualifying for a new mortgage in the future.

What Is a Short Sale? 

One Way to Avoid Foreclosure

A short sale happens when a homeowner sells their home for less than they owe on the mortgage. Typically, homeowners choose a short sale only when their home will likely be foreclosed upon and market conditions make it so they owe more on the house than its fair market value.

Benefits of Short Sales for Homeowners

While short sales may not be common, they do have benefits for homeowners in certain situations:

You Can Stay in the Home Until the Sale

Staying in your home means you’ll have extra time to find another place to live and plan your move.

You Pay Fewer Fees

Usually, the homeowner is responsible for paying both closing costs and the real estate agent’s commission. However, in a short sale, the lender typically covers these fees.

You May Reduce Your Debt Burden

In many cases (though not always), your lender will forgive the balance on your mortgage that remains after the sale.

You Might Receive Relocation Assistance

While this is not a guaranteed benefit of a short sale, many lenders offer up to $7,500 in relocation assistance.

You Might Qualify for Another Mortgage Sooner

While a short sale does cause some damage to your credit, it is less impactful than a foreclosure. Usually, after a foreclosure, you must wait seven years before qualifying for another mortgage. However, when you choose a short sale, you may be eligible for another mortgage a mere two years after the sale.

Benefits of Short Sales for Lenders

While lenders prefer that borrowers pay off their mortgages in full, they understand that hardships happen. In this case, it’s better for them to recoup some of the mortgage balance than none at all. Here are some of the benefits of a short sale for your lender:

• It saves time and money compared to foreclosure.
• The lender doesn’t have to coordinate the sale of the property.
• Because the lender recovers a significant part of the mortgage, they can avoid the cost of suing the homeowner.
• Lenders who work with borrowers instead of foreclosing often gain better reputations.

There are benefits to short sales, but is a short sale right for you? You shouldn’t make this critical life decision without the aid of an experienced attorney.

Call The Law Office of Carlos M. Amor, P.A., at 954-453-7200 to schedule a free consultation via phone, video call, or in person.

Drawbacks of Short Sales 

Short sales are not without their drawbacks. Here are some disadvantages to consider:

• If a portion of your debt is forgiven, you will have to pay tax on it.
• You will still face credit damage.
• Because so many different parties are involved, the sale process can be very complex.

A short sale is not ideal. However, if you’re stuck choosing between foreclosure or a short sale, a short sale is almost always the preferable option.

Short Sale Eligibility Requirements 

Not everyone is eligible for a short sale. These are the requirements you must fulfill in order for the lender to accept a short sale:

• You must be able to demonstrate financial hardship to the lender.
• The lender must agree to the short sale and approve the price on your contract for sale and purchase.
• The buyer must not be a relative or someone you know.
• The sale price must be close to the home’s fair market value.

Some lenders may have additional requirements, so you should make sure you are familiar with those requirements before going forward.

Steps to Take for a Short Sale 

Here’s how the short sale process typically works:

• You fall behind on mortgage payments and believe you’ll face foreclosure in the near future.
• You notify the lender and provide proof of financial hardship.
• You try to sell the home for as close to the mortgage balance as you can.
• You forward offers to the lender, who ultimately decides whether to accept the offers or not.
• The lender accepts the proceeds of the sale.
• The lender often forgives the remainder of what you owe on the mortgage.

The right documentation is essential for a short sale. An experienced real estate lawyer may be able to help you assemble the necessary documents and streamline the short sale process.

Alternatives to Short Sales

A Short Sale Isn’t Your Only Option

If foreclosure is imminent, you have a few options for avoiding this route:

• Asking your lender to modify loan terms
• Deed in lieu of foreclosure (transferring the deed directly to the lender)
• Loan forbearance (temporarily suspending payments due to hardship)
• Refinancing the mortgage
• Temporarily relying on payments from your private mortgage insurance company.

It can be difficult to decide which of these options best fits your situation. Attorney Carlos M. Amor may be able to review your situation and help you choose the ideal path forward.

Facing Foreclosure? Don’t Panic — Know Your Options

It’s easy to feel despair when you fall too far behind on your mortgage payments. When this happens, you might be resigned to losing your home to foreclosure. However, the foreclosure process can cause serious credit damage that makes it harder to qualify for a mortgage in the future, even if your financial situation has improved considerably.

Even if you can’t catch up on payments, a short sale might be able to help you keep the damage to your credit to a minimum. Attorney Carlos M. Amor has more than 15 years of experience in real estate law, and he’s committed to helping Florida homeowners navigate some of the most challenging circumstances of their lives.

Facing foreclosure? Carlos M. Amor may be able to help you decide whether a short sale or another option can protect your credit and preserve your future chances of buying a home. Call 954-453-7200 to book a free consultation in person, over the phone, or through video chat.