Short Sales vs Foreclosure
Many people are confused about short sales vs. foreclosure. This article is intended to provide an overview of the major differences between these two types of real estate transactions. If you are facing foreclosure or considering making a short sale request to your lender it is usually best to seek the advice of a real estate attorney or short sale specialist.
Short sales vs. foreclosure is not complicated, but there are many rules and regulations which must be followed in either scenario. Otherwise, either option could end up costing several thousand dollars and total destruction of your credit rating.
Short sales are usually a smarter financial choice for borrowers who have become delinquent on their mortgage note, but have not yet entered the foreclosure phase. This type of transaction requires approval from your lender. Borrowers must meet certain criteria in order to qualify for short sale approval.
The first step requires contacting the loss mitigation department of your lender. Your account will be assigned to a loss mitigator who will assist you throughout the process. If your mortgage lender agrees to enter into a short sale agreement, you will be required to undergo a financial audit.
The bank will provide a short sale packet which includes a list of documents to provide. These normally include financial statements such as checking, savings and investment accounts, along with previous years' tax returns, list of income and expenses, and expenses connected to the property such as taxes and insurance.
Most banks require borrowers to submit a short sale hardship letter explaining the circumstances which caused delinquency on your mortgage note. Lenders prefer this letter to include a timeline of events, along with any actions you have taken to rectify the situation.
Depending on your bank's short sale policies, you will either be required to have a buyer in place before approval is granted or list your property through a realtor and sell it within a specified period of time.
Two types of short sales exist. The first is known as Payment in Full without Pursuit of Deficiency Judgment. This is the preferred choice because it means the bank will accept the sale price as payment in full toward the mortgage note.
The second type is a Deficiency Judgment. This means the bank will hold you responsible for the difference between the sale price and loan balance. Considering this could amount to several thousand dollars, it might be best to allow the property to fall into foreclosure.
When real estate is foreclosed, the bank attempts to sell the property through public auction. If no acceptable bids are placed, the property is returned to the bank. At this point, the mortgage lender becomes responsible for maintaining the property until it sells.
Mortgage lenders can issue deficiency judgments on foreclosure property. Just as with short sales, the lender places a judgment for the deficiency amount. Once a judgment is issued, it remains on your credit report until fully repaid.
If you do not qualify for short sales and have no choice but to allow the property to be foreclosed, request a Deed in Lieu of Foreclosure from your lender. A deed in lieu releases you from the financial responsibility of any deficiency.
If you are facing foreclosure or have obtained short sale approval from your lender, I might have a solution for your problem. As a private real estate investor, I buy distressed properties and can assist with lender negotiations.
I am primarily interested in real estate located in southern California and Orange County. I also buy houses in Washington, Nevada and Arizona. If you need to sell your house fast to satisfy a short sale agreement, I encourage you to submit your property via the "we buy houses". I will review your information to determine if it fits our criteria. If so, I will contact you to discuss available options.
In the meantime, visit my short sales vs. foreclosure article library to become familiar with the processes involved and what you can expect when engaging in either type of transaction.