If the value of your property has significantly depreciated, or if your mortgage payment is too high leaving you stuck in a home you cannot afford, you may want to consider a short sale.
A short sale is a settlement agreement between you and the bank that allows you to sell your home for less than what you currently owe. The money from a short sale will completely pay off your mortgage. You may be asking yourself…why would the bank let you do that?
Simply put, the lender very likely sees a short sale as the best way out of a bad situation. The bank’s other option is to foreclose on the property. However, in most foreclosures, the bank spends considerable time and expense with the court in obtaining it, only to take a loss once the property is sold for a steep discount at a sheriff’s sale.
Benefits of a Short Sale Over Foreclosure or Bankruptcy
A short sale also provides a future benefit, and they are much better for your chances to finance new loans compared to the alternatives. A short sale shows up on credit reports as a “settlement”, and carries less consequences than foreclosures.
Typically, a foreclosure knocks your credit score down by as much as 250-300 points, and it stays on your credit report for seven years, negatively impacting your ability to get future financing for things like credit cards, cars, loans, mortgages, and even rental housing and employment.
If, on the other hand, you completed a short sale, your credit report would likely fall only 50-75 points, which is something that you can rehabilitate in very short order. Property owners can apply for an FHA loan and be back in a home they can afford in as few as two years.
Short Sell Before Trouble
Timing is crucial with a short sale. You want to avoid the bank’s move to foreclose on the property if at all possible, and a successful short sale requires documents from you, your realtor, and a law office. If the foreclosure process is already underway, a short sale may still be in your best interests.
Tadross Law works with homeowners to help them navigate their way through the options available to them and will help them make the right choices for their situations. Homeowners in Philadelphia, Bucks County, or Montgomery County can reach out to our law firm today to find out if they qualify for a short sale and to discuss their options!
What is a Deficiency Judgment?
In a typical short sale, the difference between the sale price and mortgage debt is called the “deficiency.” For example, say the total you owe on your first mortgage is $200,000, but the short sale price is $150,000. The deficiency is the difference which is $50,000.
Consider Hiring an Attorney for Your Short Sale
If you need legal advice about your short sale or risk of deficiency judgment, we recommend contacting the attorneys at our law firm to advise you on how to proceed.
Our knowledgeable lawyers have broad skills in negotiation. If you’re worried that you may be facing a potential deficiency, our attorneys can help:
- Negotiating waivers of deficiency
- Settling deficiency for lesser amounts
Homeowners should keep in mind that they may face tax consequences if their lender forgives all or parts of the deficiency.