Avoiding foreclosure is beneficial for homeowners, since being foreclosed on can significantly damage their credit scores. There are numerous alternatives to foreclosure, such as a revised payment plan or loan modification. Another option that can help homeowners avoid foreclosure and salvage their credit score is short selling their home.
If you are a homeowner who is unable to make mortgage payments and is considering a short sale, it is best to consult with an experienced Miami foreclosure defense attorney as early as possible, before the bank files a foreclosure suit. Prior to deciding on short selling, it’s vital to understand what a short sale entails, as well as its consequences.
Definition of Short Sale
A short sale is an alternative to foreclosure in which the lender agrees to sell the home to a third-party buyer and accept less than what it’s still owed on the mortgage. The difference between the sale price and the original value of the mortgage is either forgiven by the lender or paid fully or in part by the borrower. The latter happens if the lender gets a deficiency judgment against the borrower.
Short Sale Approval
It is up to the bank whether or not to approve a short sale. Lenders are not required to accept a homebuyer’s decision to short sell his or her property. It is highly recommended that a homeowner consults with a foreclosure defense attorney and with a qualified person representing his bank to determine the likelihood of the bank’s approval. There are three things a homeowner needs to send to their lender if he or she is looking to get approved for a short sale.
It is the homeowner’s responsibility to find a potential buyer for his home. To decrease the chances of a potential sale falling through, it is best to find a buyer who has pre-approval from the lender. Otherwise, the approval process could take longer and the buyer might opt out and pursue another property.
2. Documents Proving Financial Hardship
Though it is possible for a lender to approve a short sale even if the borrower has not been late on their payments, an approval is far more likely if the borrower is under significant financial burden. Collect all documents that prove financial hardship, such as bank statements, medical bills, pay stubs, job termination notices, and divorce decree. However, be cautious about submitting financial information to a lender. The information could be used against you during the foreclosure proceedings if the short sale is denied. A foreclosure defense attorney’s guidance is especially needed to navigate through these complexities.
3. Hardship Letter
In addition to submitting a buyer’s offer and the rest of the appropriate documents, homeowners should include a hardship letter detailing the circumstances that are preventing them from making mortgage payments. In this letter, they must convincingly describe their dismal financial situation and the reasons why they are pursuing a short sale.
Consequences of a Short Sale
Short selling a property can protect a homeowner’s credit score from the severe and long-lasting damage of foreclosure. A short sale can still affect credit scores, just not as harshly. Credit scores will decrease if a borrower’s missed mortgage payments prior to the short sale are listed as delinquent payments. The bank is the one that decides what to report, so homeowners should try to convince them not to report their defaulted payments so their credit scores won’t suffer as much.
Another advantage short selling has over foreclosure is that homeowner can buy another home in a shorter amount of time. After a short sale, the waiting period to buy another house is usually up to 24 months. After a foreclosure, the waiting period often lasts for up to 72 months. Another benefit is that after short selling people wanting to buy another house are eligible for mortgages that are insured by the Federal Housing Administration. The only prerequisite is that they must buy a home that is smaller and cheaper than their previous property in order to be approved for those mortgages.
A short sale is an alternative to foreclosure that can be advantageous to homeowners. However, despite its name, a short sale can be a long and labor-intensive process. An experienced Miami foreclosure defense attorney can ease the difficulties of achieving a short sale. If you are considering short selling you home and wish to learn how our team at Graham Legal can help, call us for a free consultation.