Did you recently receive a notice from your bank saying that your home is up for foreclosure? Or maybe you’ve been expecting one because it’s been months since you last paid your mortgage? Either way, we know how anticipation can drive you up the wall. So in this article, we take you through some of the facts to explore when considering a short sale.
What Is It Called When You Sell Houses for a Less Amount?
To combat foreclosure, you have a few options: go for a short sale, explore loan modification or refinancing options, file for bankruptcy, and more. When you sell your house for a lesser amount than what you owe on the mortgage, that’s considered a short sale. Similar to foreclosure, your bank also processes the short sale. This means that the bank has the last say on whether going for a short sale is indeed more beneficial than going for foreclosure, depending on your home’s equity and your situation.
Once it’s approved, you’ll have to find a buyer who will buy your house in the intended period. Take note that the bank will be the one to decide how much you can sell your house for. As of 2020, 7.8% of home sales in the U.S. was comprised of homes in distress (foreclosed homes, short sales, etc.)
Benefits You Get From a Short Sale
1. Avoid Foreclosure
Again, the best benefit of a short sale is that you avoid a foreclosure on your home. In the State of Georgia, it takes about 120 days after your official payment deadline for the bank to deliver an initial notice. If you still wouldn’t be able to pay your dues within the deadline stipulated in the notice, the bank will have to schedule a foreclosure sale date, and they will inform you 30 days before the sale date.
The timeline may seem too fast, but remember that every day counts, and you still have time to explore other options to avoid foreclosure. The moment you receive the first official notice, we recommend that you talk to your bank the soonest time possible.
2. Avoid Credit Worries
With a foreclosure, you face all kinds of ramifications with your credit. For example, when it comes to buying a car or renting a house, you may have to look for other possible routes than the typical bank process. However, if the bank approves you for a short sale, your credit report will only show a pre-foreclosure status, which reduces your credit rating minimally compared to a foreclosure.
3. Being Able to Avail Mortgage Again
Foreclosure can have long-term impacts. For example, you might not be able to obtain a new mortgage for up to seven years because your foreclosure will stay on your credit report. On the other hand, a short sale offers a little more flexibility. It allows you to apply for a new home mortgage only two years after being approved for a short sale.
4. Lesser Processing Fee Than Foreclosure
One potential benefit of the short sale is there are usually no fees associated with the process from the bank. Banks just want to get the note off of their books. If you can prove that your house is “underwater” and you’re at risk of walking away from the house, the bank may rather work out a short sale instead of going through a costly foreclosure (foreclosures cost lenders about $40,000 – $50,000).
Difference Between a Short Sale and a Quick Sale
A Short Sale and a Quick Sale are two different concepts. A short sale happens when the house is sold and bought for a price lower than your outstanding mortgage balance. On the other hand, a quick sale occurs when the house is sold faster than the average days on the market (DOM) — at a price that’s not necessarily lower than what you owe on your mortgage. This means that you can still get your equity from a quick sale, but not in a short sale.
Additionally, unlike a short sale, you don’t have to get the bank’s approval to proceed with a quick sale. You can also do a quick sale during the pre-foreclosure phase (the time when your mortgage payment lapsed until the foreclosure sale date.
Deed in Lieu VS Short Sale
Foreclosure involves the forceful removal of the homeowner from the property using all legal means. Disputes are common during a foreclosure, making it more costly and stressful for both the lender and the homeowner. This is why incentives may be given if you obligingly hand over your deed to your lender. Alternatively, if you don’t receive incentives, the government extends mortgage refinancing programs for qualified homeowners.
If you proceed with a Deed in Lieu, that will still show up on your credit report, but the consequences will be less drastic than having “foreclosure” on the report. Additionally, your lender will still give you around 90 days to sell your home at fair market value. If your home doesn’t sell after that grace period, only then will the bank accept your Deed in Lieu.
If you need further help evaluating which pre-foreclosure measure is best for your situation, you can contact us at Spire Property Solutions. We offer more than just a fair cash price for your home. We also make sure that you’ve considered all other possible options beforehand. You can contact us by filling out the form below or call us at (678) 318 – 1801.