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There are few things more devastating that could happen to a person in their lifetime then the loss of their home. Unfortunately this has been happening on a consistent basis for the past several years as the real estate market has suffered a 30% reduction in home values putting many homeowners "upside down" with regards to the equity in their homes. This has left these homeowners with only a few choices when it comes to ridding themselves of their homes and none of them are pleasant. It is definitely a situation where you have to choose the lesser of all evils. The choices most people face are suffering a foreclosure of their home, giving the property back to the bank via a deed-in-lieu of foreclosure, or selling their home through a short sale which in my opinion is the best choice.
Let me explain why a short sale is better than the other options I listed. First off, losing your home in foreclosure will ruin your credit for up to the next seven years. It could also prevent you from buying another home, renting a home, or even getting a job. It is far and away the option you want to avoid at any cost.
A deed-in-lieu is where you are facing a foreclosure judgment, you have no other options to get out of the property, and in order to avoid having the foreclosure judgment on your credit, you agree to deed the property back to the lender without them going through the time and costs associated with foreclosing.
The problem with both of these scenarios is you are still liable to the lender for the amount of your loan. The lender will sell the property at auction to try and recoup as much as they can, however the remaining balance will still be owed. This is known as a deficiency judgment where the amount the lender received at auction was not sufficient to cover the amount that was owed on the property. With a deficiency judgment a lender can come after you for the difference and use any legal means of collection at their disposal such as garnishing your wages or attaching your assets.
So why is a short sale your best option? It allows you to sell your property at the current market value for your neighborhood while avoiding a deficiency judgment. Basically you get to walk away from the property with no further liability. It also is much more forgiving on your credit score than a foreclosure or deed-in-lieu.
A short sale however is not easy and is very time consuming. You need to be prepared to worth with your lender to get it done. They are going to require a list of documents from you proving your inability to continue to make your mortgage payment such as your tax returns, bank statements and pay stubs. You are also going to have to write a hardship letter explaining what went wrong in your life that caused you to be unable to make your payments.
A short sale can take anywhere from two weeks to six months to get finalized. You are going to want to retain the services of a real estate agent who is very familiar with this type of sale and can help you in the negotiation of your sales price with the lender. However the good news is lenders have started giving money to sellers who can successfully short sale their homes. I have seen sellers receive anywhere from $3,000 to $15,000 dollars at the closing table. The reason is the banks do not want to incur the expense of foreclosing and also most of the time if they do foreclose and sell the house at an auction they are going to get less money for it than what they will receive from a short sale.
So not only does a short sale save your credit and avoid a deficiency judgment, it can also give you cash at the closing table. This makes it by far your best option when forced to sell.
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