Short Sale vs Foreclosure

A short sale is when a bank agrees to accept less than the total amount owed on a mortgage to avoid having to foreclose on the property.

You First Have to Qualify For a Short sale!

• Your house must be worth less than you owe on it plus the cost to transfer title.
• You must be able to prove that you are the victim of a true financial hardship, such as a decrease in wages, job loss, or medical condition that has altered your ability to make the same income as when the loan was originated. Divorce, estate situations, etc. also qualify.

Short Sales and Foreclosures Misconceptions:

If you let your home go to foreclosure you no longer have any responsibilities and you can walk away with a clean slate.

Keep in mind that if your property does go into foreclosure you may be liable for the difference of what is owed on the property versus what it sells for at auction, in the form of a deficiency balance. Although there are exemptions under the Mortgage Debt Forgiveness Act, there are times when you can be taxed on both a short sale and a foreclosure. Since the tax code on this is complicated, I advise always talking to a CPA as you are weighing your options.

There are no options to avoid foreclosure.

There are options to avoid foreclosure. Besides a short sale, loan modifications and deed in lieu are examples. In some cases a short sale is the best option. There are more options today than there ever has been to avoid foreclosure.

Banks do not want to participate in a short sale, or, it is too hard to qualify for a short sale.

Banks would rather perform a short sale than a foreclosure. A foreclosure takes a long time to process at a large expense. A short sale saves both time and money.

The short sale process is too difficult and they often get denied.

Some short sales are denied because of a misunderstanding of the process. It is true, if the short sale process is not followed correctly, there is a good chance of getting denied. Short sales require a lot of experience and a special skill set. Make sure to work with an experienced agent.

A short sale will cost me money out of pocket.

A short sale should not cost you any out of pocket money. Almost every short sale program now has some type of financial incentive for the home owner, as long as it is a principal residence. Realtors commission is paid for by the lender. There are also non-profit and HUD counselors who can help you with foreclosure prevention options free of charge.

I can perform a short sale any time I am behind on my payments.

The farther you get behind on your payments, the harder it is to get a short sale approved. The closer a property gets to a foreclosure the harder it is to convince the bank to perform a short sale. As they get closer to a foreclosure, more money is spent by the lien holders so there are fewer reasons to work with a seller on a short sale.

I have already been sent a foreclosure notice so I can’t perform a short sale.

If you receive a foreclosure notice or notice of default it does not mean that you do not have time to perform a short sale. The longer you wait the less chance you have. If you have received a legal foreclosure notice, please reach out to a professional right away.

I was denied a loan modification, so I will be denied for a short sale.

Short sales and loan modifications are handled by two separate departments. These processes are totally different in approval and denial. If you are denied for a modification you can still apply for a short sale. In some cases, you can obtain a short sale approval faster than a loan modification. Some loan modifications are denied because they cannot reduce the loan low enough due to the owner’s income.

If I go through a short sale I cannot buy another house for a long time.

The time to buy another house depends on the entire credit picture. It can vary from 12-24 months.