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In the second episode of Short Sales 101 we address why you would contemplate a short sale. As we move forward, it’s important to remember that every homeowner’s situation is different, and we’ll be talking in generalities for much of this series. Every homeowner is different, every hardship varies, every lender handles things differently, and even within the same lending institution short sales are handled differently. The best advice always is to talk with an experienced short sale professional in your area.

WHAT TO DO BEFORE CONSIDERING A SHORT SALE?

A short sale is considered one of the final options prior to foreclosure. If a homeowner is having financial difficulties keeping current on their mortgage, or if they have already missed payments and are unable to catch up, there are a few options which they could pursue. The first is to contact your lender and let them know that you are having problems. There isn’t a reason why you wouldn’t want to be honest, and let them know that you are running into trouble. They may be able to offer you options such as a forbearance or a loan modification. These are the best options if you’d like to stay in the home. There are new HAMP guidelines that are coming out that open up the ability to refinance or modify your loan even if you’re underwater. One key site to check out through this is the Making Home Affordable site from the government. You can click through to it here. Beware of other websites claiming to be able to help and provide information. They’re most likely third-party services for which you would pay them to handle your request. More often than not, if you’re diligent, you can handle the requests of your lender for a modification yourself. If you’re looking at refinancing, contact your local mortgage or real estate professional and they’ll be able to point you in the right direction.

IF THAT DOESN’T WORK?

If you don’t qualify for a refinance or for a loan modification, make sure you keep the heap of documents you provided at the ready. It’s probably time to discuss a short sale. We stated at the top that a short sale should be the last option prior to foreclosure. It’s important to make clear that a short sale is far better for a homeowner than a foreclosure, and this is where we get to the meat of the title of this post.

You may want to short sale over letting your property drop into foreclosure for these reasons:

  • The impact on your credit, whether you’re already in default or not, may be far less than that of a foreclosure
  • In a foreclosure, your lender may be able to come after you in the future for the deficiency (the difference between what they net on the sale of your home, and what the mortgage balance had been). With a short sale, you may be able to obtain a deficiency waiver. This not only releases the lien on the property, but the lender will release you from all future liability related to the loan. This means that they will not be able to pursue you in the future for the deficiency or any other judgment related to your loan on the property.
  • The ability to purchase a home again sooner if you short sale, rather than foreclose. In some cases, you may be able to purchase again in two years after a short sale, whereas with a foreclosure you may not be able to purchase for at least seven years.
  • Depending on your lender, your financial state, and government programs that are available, you may be eligible for a relocation fee from the sale of your home. Two examples are the HAFA program and Bank of America’s Cooperative Short Sale program. Each one allows funds to be paid to the seller at closing for relocation. Additionally, the foreclosure process is halted during this time and there is typically a deficiency waiver given through these programs.

WHAT DO I NEED TO PURSUE?

We’ll touch on this heavily in the next post in Short Sales 101, but most lenders require documentation that shows a hardship. Before they agree to lose thousands, and sometimes hundreds of thousands of dollars in a short sale, they want to make sure that it’s justified. Something will have had to have changed in a homeowner’s life in order to justify a short sale. Whether it’s medical bills, loss of job or loss of income, divorce, or something else, there needs to be a reason why you are currently not paying your mortgage or will soon be unable to continue paying your mortgage. More on the justification and documentation to come…

TALK WITH A PROFESSIONAL

Remember, it’s great to search the web and read blogs, articles, and lenders’ websites. But nothing is as helpful as talking with a local, experienced, short sale professional. If you feel like you’re not getting the answers you want, or you want a second opinion, interview two or three. It’s important you are working with someone who you trust and who you believe will represent you appropriately.

If you’re in the Chicago area, and you’re having difficulty staying current, feel free to contact us at The Chicago Short Sale Team. We’re experienced and we treat our clients with confidentiality, honesty, and compassion.

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