Everyone’s situation can be extremely different.  For real estate property owners who have fallen behind on their mortgage payments and are not able to recuperate to continue making the monthly mortgage payment, sometimes the only choice is to find a way out of the commitment. There are only two options to get out of the commitment and yes, eliminate some stress.  Now, what are these two approaches? They are Short Sale and Foreclosure.

Short Sale: a short sale is when a property owner sells the property for less than the amount he owes to the lender. The short sale can only happens if:

  • The mortgage company is willing to accept less than the amount owed on the debt, and is willing to accept a sales price below the appraised value of the property.
  • The sale is the result of an arm’s length at or below the appraised value for that property,

The short sale is an opportunity provided by the Home Affordable Modification Program (HAMP) and Home Affordable Foreclosure Alternatives (HAFA) to homeowners to exit their home and be relieved of the remaining mortgage debt.  To be eligible you must meet the following criteria:

  • You are under a financial hardship and can not make the mortgage payment,
  • You had fallen behind on your mortgage or you are in arrears,
  • You obtained your mortgage on or before January 1, 2009,
  • Your property has not been condemned,

If the property has other liens with interest on it, they may prevent the process;  some lenders may want to seek personal judgment against you for the deficiency amount, for this reason it is important the short sale agreement states that the lender waives its right to the deficiency. in the short sale process the date of sale and date you vacate the property is more certain, you get assistant from the lender with some expenses to relocate, and your credit is less affected than on a foreclosure.  In addition, when a deficiency is forgiven there may be tax implications.

Foreclosure:  is when the lender seizes the property, because the borrower stops making the mortgage payments and in cases vacates the property. It make take several months after the borrower had fallen behind on the payments, for the lender to initiate a foreclosure, once it does, it seizes the property over and try to sell it on its own.

In the foreclosure process usually the date is determined by a judge, if the borrower has not vaceted the property by the time requested by the court, the borrower could be removed by a sheriff. As the lender is forced to sale the property, there is a possibility of a deficiency judgement whereby the debtor continues owing money after the sale.

Foreclosure can be prevented by short sale in addition foreclosure sale on your credit makes it very difficult to purchase property in the future.  While a short sale is viewed more favorably from future creditors.

How can bankruptcy affect each process?

Bankruptcy stops foreclosure sales and allows time to negotiate the mortgagee, which could result in a short sale agreement.

Most decisions in life  has its pros and cons, for this reason it is important to analyze every option before determine the most beneficial way to solve the situation. Which approach to follow in the case that you are not able to continue making your monthly payments, it is something you need to analyze carefully with the help of an attorney on the subject and can guide you to the most beneficial exit. Call us today, for a free consultation.