Foreclosure is one of the worst things that can happen to your credit record. It should be avoided whenever possible.
Filing for bankruptcy will slow the foreclosure process, allowing you to pursue options to save your home, such as negotiating a forbearance agreement with your lender. But bankruptcy has serious drawbacks, affecting your credit rating for seven years and making it difficult to get credit and refinancing.
If your high mortgage payments are completely unmanageable, causing serious financial problems and bringing your family to the brink of bankruptcy, it may be time to consider a short sale of your home. Depending upon your circumstances, a short sale may allow you to avoid both foreclosure and bankruptcy.
What is a Short Sale?
This is a typical scenario in which a homeowner may wish to consider a “short sale” on a home:
- A homebuyer purchased a home five years ago for $350,000. with an adjustable rate mortgage (ARM)
- The monthly payments increased dramatically, making it difficult for the homeowner to make the monthly payments
- Home values dropped so the home is now worth $325,000., but the homeowner still owes $341,000.
If the homeowner can find a buyer for the home at its current assessed value of $325,000., the homeowner will be “short” the $16,000 owing to the mortgage lender.
Will a Bank Approve a Short Sale?
There are good reasons for a bank to accept a short sale:
- If the bank/lender forecloses on the home, it accepts ownership of the property and must insure it, maintain it, and winterize it. The bank would much prefer that the homeowner does this.
- If the mortgage company owns the home, the mortgage company must handle the job of marketing and selling it. That is not a job that they want.
The Down Side of a Short Sale
A lender does not have to accept less than the amount owed on a property. The bank may require the homeowner to pay the amount still owing. But it is more common for the bank to waive the amount owed and accept the amount from the short sale. This may require negotiation on the part of the seller and his/her attorney.
A short sale may also have unexpected tax consequences so it’s wise to talk with a lawyer before you decide that a short sale is the best way to avoid bankruptcy and foreclosure.
At Volman Law, we can help you understand your options so you can make the best decision given your specific situation. Contact the Shelton, CT lawyers at Volman Law for a free initial consultation.
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