If you are facing a foreclosure you do have several options to stop the foreclosure process - here we will be looking at the Short Sale as an option.
Your mortgage lender must agree to a short sale. In simple terms, short sale refers to selling your home for less than the amount of money that you owe on your mortgage. It does not refer to selling your home fast.
What Is A Short Sale?
If your are going to sell your home on a short sale for less than you owe on it one of two things must happen for the sale to go through. First, if you sell for less then you need to put some of your personal money into the sale - or get more money from the buyer so that you have enough to pay off the mortgage at closing.
But, since you are probably selling your home since you are facing foreclosure and do not have that extra money, then this option isn't a good one for you. The next option is getting your mortgage company to agree to a short sale. A short sale is when your mortgage company settles for less than you owe on your mortgage.
Why Would My Mortgage Company Do A Short Sale
Mortgage companies are in the business of lending money. They are not in the business of property ownership or property management. They do not want your house. Having a house to them ties up their money. Here are some reasons why they might accept your short sale offer:
- Property Management Expenses - Given that mortgage companies are not property managers they have to allow for a deeper cut in their budgets to keep your property maintained, utilities on and paid for, make repairs to the property if needed to sell it and so forth. This can get very expensive especially if your lender is a national lender with homes in foreclosure all over the country. It might be cheaper for them to accept a loss on the mortgage payoff than pay for the hassle of managing your property until they sell it.
- Good Samaritan Reasons - Given that there is such a credit crunch in the U.S. and that these mortgage lenders were actually part of the problem there is a very close eye watching to see what mortgage lenders are doing to help resolve things. If you approach them with a reasonable offer and not get nasty with them, they are likely to surprise you with the willingness to work with you.
- Investors Not Property Owners - Again, with a home on the asset books means that their money is not being used for more investment - more mortgages for other home owners. Mortgage lenders get their money from Wall Street and Wall Street is all about investing and money - not owning homes. Not only is the money from the mortgage tied up, but while there is no mortgage payment coming in there is no revenue for the investor.
Also, with the mortgage having to hold your property until they sell it, they must set aside a contingency fund in addition to the management fund to deal with possible losses to the mortgage balance when they sell it. This money that is set aside isn't making money for the investor either. They have an incentive to work something out.
Why Do I Want a Short Sale Instead of Foreclosure
Foreclosures stick around on your credit report for at least 7 years. You can get a mortgage again after three years from a foreclosure, but your credit history better be spotless or you might have a more difficult time. With a short sale, all that you should have on your credit report from your mortgage history are some late payments. Late payments don't really matter after 2 years and if you go for a FHA home loan then you may be able to get one after just 12 months of on time rent payments once you sell your home.
Another consideration about a short sale is that you are the one doing the work to get yourself out of the situation that you are in. Imagine the sense of accomplishment and joy when you get the approval from your lender to proceed with your short sale request. You will not have the foreclosure on your credit report or in the back of your mind.
Considering A Short Sale? Start Early
Short sales take some time to complete. You will have to provide a lot of information to your mortgage lender to get them to approve your request. Given the mortgage and credit problems in the mortgage industry in 2008 lenders have a lot of short sale and foreclosure proceedings on their hands. You will need to initiate your request early so that you have time to get it approved. To them, you are just a number, just like the other home owners they are dealing with. So, keep your patience too.
If you decide that you want to go this route you will need to get yourself prepared. You can find this information in another article of mine called How Can I Get My Lender To Agree To My Short Sale Request?. In the meantime, stay in touch with your lender and let them know what is going on if you have gotten behind on your payments to them. They are much more likely to work with you if you are working with them. And let them know that you are looking into a Short Sale as an option to prevent foreclosure.
