If you are unable to make your mortgage payments, you may be considering what to do next. One option is a short sale. Another option is foreclosure. There are many benefits to choosing a short sale over foreclosure.
Before you make a decision, make sure you know the facts. Our partner, Lambros Politis, Lead Counsel and debt settlement specialist at Ark Law Group, points out six powerful reasons to consider a short sale instead of foreclosure:
Selling your home can be a tough choice. It’s an emotion-packed decision that affects your whole family. Often homeowners feel that selling short is a catastrophe – even when it’s almost impossible to make their mortgage payments.
A short sale can be the first step to a financial freedom. The relief from getting out from under an unaffordable mortgage can be exhilarating. It really is the beginning of a new life.
Foreclosure is a far worse alternative to a short sale. If you keep hoping something will change – you’ll get a windfall or a huge raise – and it doesn’t happen, at some point you’ll have to stop paying your mortgage. When you go into default, your bank will foreclose. And that’s very bad news.
If your mortgage payments are too much for you to handle and you’re at risk of losing your home, I want you to consider these reasons for choosing a short sale.
1.In a short sale, all debts will be settled or re-negotiated.
With a foreclosure, your home will almost certainly sell for less than what you owe. Your mortgage lender then might have the right to sue you for the rest of the debt or garnish your wages to get the money you still owe. The nightmare isn’t always over just because you lost your property.
Washington State allows non-judicial foreclosure on a lien. If your lender chooses non-judicial foreclosure, they can’t collect any remaining balance from you after they auction off your home. However, if you have other liens against your property – a second mortgage, a HELOC, or other debts secured by your home – those lenders still have the right to sue you, garnish your income or take money out of your bank account.
With a short sale, we will work with your mortgage holder to get a deficiency waiver, so the balance of your debt is forgiven. We will also work with any other lender to remove their lien from the property. This has to happen or the short sale can’t proceed. Our negotiator will also try to get a better deal for you, if the lender won’t forgive the debt – such as a reduced payment plan.
As a rule, we’re able to get full settlements for 90% to 95% of our clients while negotiating a short sale.
2.Foreclosure has a bigger impact on your credit than a short sale.
If you stop making payments on your home, that’s a big deal to lenders. That’s why a foreclosure is noted in your credit report for seven years. Even if you recover financially, have a down payment saved and great income, you’re very unlikely to be able to buy a new home for at least a few years.
A short sale is also kept in your credit record for seven years – and will also lower your credit score. Following a short sale, the waiting period before you can qualify for a Fannie Mae or Freddie Mac loan is much shorter than if you go through foreclosure. And without delinquent payments, your credit score will be higher. If you’re hoping to get an FHA loan, you may qualify for consideration even sooner.
3.Foreclosure is public information.
There is some stigma to foreclosure. If the bank plans to auction off your home, they’ll put notices on your door and in your yard. Your neighbors will know you aren’t able to make your mortgage payments.
From the outside, a short sale looks like any other real estate transaction. No one needs to know. You’re in good company. As recently as March 2015, 10% of all home sales were short sales.
4.With a short sale, you may qualify for generous government cash incentives to help with relocation.
If you meet HAFA (Home Affordable Foreclosure Alternatives) requirements you may get up to $10,000 when your short sale closes. While it’s called “relocation assistance,” you can use the money for anything. To qualify, you need to be using this home as your primary residence.
Even if you don’t qualify for HAFA relocation assistance, you have other options. If you have a Fannie Mae loan, you may qualify for up to $3,000 in assistance at closing. FHA and VA lenders may offer $1,500.
Not all lenders participate in these programs. We find that our clients get this assistance in about 70% of the sales we help with.
5.You don’t have to go it alone.
When you work with a team of professionals, you know that you have smart people on your side, working to get you everything you’re eligible for. You don’t have to talk to your lender yourself – we’ll take care of it. Nothing falls through the cracks. You don’t have to be the expert. All your questions are answered.
In the end, it’s always better to know you did everything possible to get the best outcome.
6.After a short sale, you can start fresh.
This is what people tell me is the biggest benefit of a short sale. It comes back to what I said at the beginning. A foreclosure only gets rid of your mortgage payment. Other lenders will still need to be paid.
We work very hard to resolve ALL your debts when we negotiate your short sale. You can let go of that stress and move forward with the rest of your life.
Richard Eastern is a Windermere broker in Bellevue, WA and co-founder of Washington Property Solutions, a short sales negotiating company. Since 2003 he has helped more than 900 homeowners sell their homes. A Bellevue native and a University of Washington grad, Richard is an avid sports fan and a devoted Little League and basketball coach. You can learn more about Richard here or at www.washortsales.com.
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