Understanding a Short Sale
If you are a Homeowner facing a financial hardship and in need of mortgage help, you may have heard that a short sale will stop foreclosure. If you are like most homeowners you probably don’t know all your options and only vaguely understand what a short sale is.
A short sale is simply the sale of a property that typically is or was in foreclosure. Instead of the property getting auctioned off it is sold to a buyer (often a real estate investor) for a discounted price. The lender is willing to sell for less than is owed on the property because the loan is underwater. This means that the market value of the home is less than the principal balance due on the original mortgage. That is the key principal. That’s why the word “short” is used. The sale price must be lower than the amount owed on the mortgage.
Should all Homeowners Seek a Short Sale to Stop foreclosure?
No! Just because a homeowner needs to stop foreclosure does not mean they would benefit from this particular foreclosure solution.
This type of foreclosure alternative is not always a good one for those folks who need to find a solution to their mortgage problems. If you are a homeowner who wants to stop foreclosure and keep your home then a short sale would be a terrible option.
In a case such as this, other mortgage workouts should be sought. If you need to stop foreclosure but want to keep your home try to utilize one of the solutions listed below.
Mortgage Solutions that Allow Homeowners to Keep Their Home
- Loan Modification – Obtaining a mortgage modification allows a homeowner to lower their monthly mortgage payment by restructuring the payment terms of the original home loan agreement. Millions of homeowners have been able to stop foreclosure and keep their home through this mortgage workout process. The Obama loan modification program has helped millions of homeowners lower their monthly payment and make home affordable again.
- Forbearance Agreement – A forbearance agreement is ideal for those homeowners who only experienced a short-term financial hardship. In this case, some sort of repayment plan is put in place and the homeowner is able to pay back what is owed according to the details of the forbearance agreement. This is the easiest workout to obtain.
- Mortgage Refinance – If a Homeowner has equity in the house then they may be able to refinance. If however they are already in mortgage default or worst foreclosure then a refinancing agreement may be next to impossible to get. This finance blog has a great resource if you are unsure if you should refinance. There is the Obama refinance program known as HAMP as well as a future Government mortgage relief program for high loan to value refinance opportunities.
When Does a Homeowner Benefit from a Short Sale?
A Homeowner who benefits from a short sale would (1) typically be in default and maybe even in foreclosure. Also, such a homeowner would (2) be unable to afford their home even with the assistance of a loan modification, or another mortgage workout.
A Homeowner in this situation would benefit from the short sale. They would be able to stop foreclosure as well as settle the balance owed to the lender. Though these are obviously good results the homeowner may be able to do better.
For instance, if there is equity in the house then the homeowner should try to sell their home on the open market. If they are already behind on the mortgage the home will probably need to be offered at a discount to expedite the sale. If this is not an option because there is no equity in the home then it’s time to find a short sale buyer.
Another way to do this without a short sale is to get the lender to accept a deed in lieu of foreclosure. This allows the homeowner to stop foreclosure and get rid of the home without owing anything else to the lender. These results are very similar to those of the short sale. This is an alternative that is only done when a buyer can’t be found in time.
Final Home Borrower Tips
If you end up benefiting from a short sale or have to move out due to the foreclosure sale you may be able to obtain foreclosure relocation assistance through a popular program commonly known as cash for keys. Foreclosure victims are often able to obtain several thousands of dollars in financial aid to help with the moving expenses incurred during these times of hardship.
The extra money can be a big help to a family budget.