Short Sales & Foreclosures

SHORT SALES
A short sale occurs when the proceeds of a real estate sale fall short of the balance owed on the property.  In a short sale, the bank or mortgage lender agrees to reduce (or discount) a loan balance due to an economic or financial hardship on the part of the mortgagor. This negotiation is all done through communication with a bank’s Loss mitigation department. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender, sometimes (but not always) in full satisfaction of the debt. In such instances, the lender would have the right to approve or disapprove of a proposed sale.

Extenuating circumstances influence whether or not banks will reduce a loan balance. These circumstances are usually related to the current real estate market climate and the individual borrower’s financial situation.

A short sale typically is executed to prevent a home foreclosure. Often a bank will choose to allow a short sale if they believe that it will result in a smaller financial loss than foreclosing. For the home owner, the advantages include avoidance of having a foreclosure on their credit history and the partial control of the monetary deficiency. Additionally, a short sale is typically faster and less expensive than a foreclosure.

FORECLOSURES
If you have bought a home using a home loan, your lender will have taken a security interest in the property. If you find that you cannot keep up with mortgage repayments on your home, the security interest gives the lender the right to proceed with a foreclosure. This can involve auctioning off your house and using the proceeds to recover their investment.

A foreclosure is a worrisome prospect for anyone, but there are options you can pursue in order to avoid it.
The first thing you need to do is to decide whether it will actually help your financial problems to allow the foreclosure to happen. If your problems are of a temporary nature, such as a sudden job loss, then it may be only a matter of time before you are again financially viable. On the other hand, your debt problems may be so great that foreclosure would be the best way to erase them.

Credit counselors can give professional advice and help with debt problems. They can negotiate with lenders to lower interest and repayments to enable you to avoid foreclosure. They will help assess your financial and debt situation and create a plan to help you with credit and debt problems now and in the future.

Another option is to contact your lender directly. Lenders make money by collecting your principal and interest payments. It is not in their best interest to proceed with a foreclosure. If you are in temporary financial difficulty and can create a plan that is to the benefit of you and the lender, then the lender may be sympathetic.  Contact the lender’s Loss Mitigation Department and inquire about lowering payments for a few months until you are financially viable again. You may even be able to suspend payments for a few months. If you come to an agreement, make sure that you receive written details regarding the suspension or reduced payment plan.

A further option may be to renegotiate your current loan. You may have bought your house when interest rates were high and your repayments may reflect this. You can try to refinance your loan at a lower interest rate in order to solve your cash flow problems. Obtain quotes from different lenders in order to receive the best interest rate on refinancing.

A final option to avoid foreclosure is to simply sell your house yourself. Your debts may have become too large to handle, and selling your house may eliminate them and stop a bad credit record due to foreclosure. You may not get your ideal price if you are trying for a quick sale, but it is a more financially sound option than foreclosure.

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