It can be an extremely stressful time when homeowners start to fall behind on their mortgage payments. A short sale is one of the financial options to help reduce the panic and debt whereby the home is sold for less than the balance remaining on the mortgage. Essentially, the homeowner is “short” on the cash required to fully pay back the lender (normally the bank). The lender agrees to a short sale in order to receive a portion of the mortgage still owed to them without the need to incur the expenses of the foreclosure process as well as the time and effort involved in rehabilitating and selling the subject property. A short sales attorney will assist in streamlining the complicated process in order for the homeowner to receive the advantages.
The common alternative to a short sale is a foreclosure whereby the lender seizes the home after the homeowner fails to make the necessary payments.
The ultimate requirement of a short sale is that the lender holding the mortgage needs to sign off the decision to commence with a short sale. A documentation of justification for the short sale decision is also required by the lender. This is due to the fact that the lender will lose money in the process of a short sale.
How Do Short Sales Work?
When a homeowner first decides to put their home on the market as a short sale deal, they need to communicate as such to any potential buyers.
Once a buyer decides to make an offer, the homeowner is required to contact the bank and complete an application asking for short sale status. There is no guarantee that the bank will oblige, however the stresses of foreclosing a mortgage loan are eliminated by agreeing.
From this point, there are many documents to be filed with the lender including a hardship letter, stubs and tax returns. The bank will review the application and send an appraiser to estimate the value of the property and assess how it compares to the short sale offer. It is from this point that the short sale offer will be approved or rejected.
The Process of a Short Sale
The process of a short sale can often be lengthily – taking up to a year to complete. This is largely due to the large amount of paperwork required. As a result of a short sale, a homeowner may encounter certain restrictions for home purchases in the near future, however a short sale is far kinder on the homeowner’s credit rating than a foreclosure.
Credit Scores vs. Foreclosures
Short sales are only one option to reduce debt on a mortgage. With the help of a short sale attorney, homeowners can choose the best option suited for them. By opting for a short sale, foreclosure and its disadvantages are avoided. In exchange, there are a few benefits that are gained through a short sale.
Credit Score
Choosing a short sale will have far less a negative effect on a homeowner’s credit rating than foreclosure. A short sale has a preferable credit score and offers a better chance for future purchases.
Personal Outlook
There is a negative social stigma attached to foreclosure. In many instances, a home mortgage is the biggest financial decision an individual can make, and foreclosure is very often considered the worst-case scenario. Short selling allows the home owner to sell their home rather than have the asset taken away from them.
Financial Saving
In addition to your home being sold at market value, the burden of fees and charges (including real estate agent commission) is reduced as the fees and commission are covered by the bank.
The Importance of a Short Sale Attorney
Short sales clearly have their benefits; however, the process can be long and complicated. Contacting a short sales attorney who has experience in foreclosure defense is highly recommended. The attorney will offer legal representation throughout the process, offering thorough guidance and ensuring the best possible outcome is achieved.