David Stanger Explains the Often-Overlooked Benefits of a Short Sale
How and When a Short Sale May Be Advantageous
A short sale may seem like an intimidating and confusing process, but it can be a valuable way for home borrowers to avoid bankruptcy and foreclosure. Short sales represent a financial loss for the borrower and for the bank, but the credit implications of a short sale are less severe than those associated with foreclosure or bankruptcy. This makes short sales a valuable form of consumer protection.
David Stanger of Westmarq Real Estate Group explains the benefits of a short sale and how it can help distressed homeowners rebuild their financial future.
Preserving Your Credit History
A short sale does make an impact on your credit history, but it is much less severe than with a bankruptcy or foreclosure. A short sale generally takes about 150-160 points off your credit score, depending on your initial credit standing. This compares to foreclosure or bankruptcy at about 200 points off your credit score. Short sales may not be able to prevent all damage to your credit, but they are viable options for borrowers who cannot make their payments.
A short sale could be considered a charge-off or a settlement on your credit report. These are derogatory items in your credit report, and they can stay there for as long as seven years. It is possible that your credit score will be able to improve after the first two years since credit scores are largely based on your activities over the last 24 months.
Avoiding Foreclosure
A short sale stops the foreclosure process in its tracks. This can be a huge benefit for the borrower. It can reduce the pressure that the borrower feels to go through with bankruptcy. With a short sale, the borrower is able to keep at least some of the proceeds. The mortgage can be paid off at a reduced dollar value, and the home is made more attractive to buyers because of the reduced sales price.
Protecting the Seller Against Additional Losses
A distressed homeowner who cannot make the payments on their mortgage may be attracted to a short sale because it is less damaging than a foreclosure or bankruptcy. One serious problem to watch out for is that the lender may seek a deficiency judgment.
A deficiency judgment often happens after the short sale. The bank may be able to collect this money from you by levying your bank account or garnishing your wages. Some states have prohibited deficiency judgments after foreclosure, but most of these laws do not address short sales.
If you find that the bank has given you a deficiency judgment, you have several different options to consider. One of these options, unfortunately, is bankruptcy. Chapter 7 bankruptcy will discharge the debt. You can also negotiate a waiver of this right when you are making your short sale package. Your lender may also agree to let you make payments over time on your deficiency judgment.
The Process of Making a Short Sale
The process of making a short sale can be tricky, and it is best to hire a real estate agent and/or lawyer who is experienced in these matters. Listing your home with a real estate agent should be one of your first steps. If you find out that your home is worth less than the amount you owe, you should start the short sale process with your mortgage lender.
When your agent finds a buyer, make sure that you have their firm offer on the home as well as their pre-approval agreement. This will make the bank more likely to approve your offer.
You should try to get a figure from the bank that represents how much they are willing to forgive. This will help you prepare in advance for any possible deficiency judgments that may be charged against you.
Your agent will need to be authorized to negotiate for you. They will need to write a cover letter that details the buyer’s offer and personal information including their down payment. First-time homebuyers have an advantage when it comes to short sale deals.
The bank will need a hardship letter. This is your chance to lay out all the reasons why you cannot make your mortgage payments. List all the potential factors that affect your ability to pay.
Make sure that your short sale package is completely accurate and up to date. If you are missing information, it will only make a lengthy process longer.
Short Sales Benefit the Seller
While a short sale may seem like a drastic course of action, it is less damaging than a foreclosure or bankruptcy. It is easier to recover from a short sale’s hit to your credit report. Selling your home for less than it is worth may represent a financial loss for you, but you will be able to walk away from the sale with more of your financial future intact.
David Stanger reminds mortgage holders that they should always try to pay their bill on time, but if they cannot do so, there are legal remedies like short sales available to help them.
