Has the value of your property depreciated, leaving you stuck in a home you cannot afford? Are you afraid your burdensome mortgage payment could be leading you into bankruptcy? If you act soon, you might be able to settle your debt outside of court with a “short sale.”
How Does a Short Sale Work?
A short sale is a type of debt settlement between you and the bank. The settlement allows you to sell your property for less than what you owe. The money from the short sale pays off your mortgage, completely. Why would the bank let you do that?
Consider your lender’s other options. They could do nothing while you continue to fall behind on payments. Or, they could go to the courts and push to foreclose on the property. Foreclosure is bad for everyone. In a foreclosure, the banks take a loss on the mortgage. When the loss from a foreclosure would be worse than the loss from a short sale, your lender sees the short sale as a bargain. Like you, they see a short sale as the best way out of a bad situation.
Benefits of a Short Sale over Foreclosure and Bankruptcy
Short sales also provide a future benefit – they are much better for your ability to finance new loans than the alternatives. A short sale shows up on your credit report as a “settlement” and carries less severe consequences than a “foreclosure.”
A foreclosure pulls your credit down by as much as 250-300 points, and it stays on your credit report for 7 years, negatively affecting your financing ability. The ability to get credit cards, cars, business loans and mortgages are all impacted, not to mention employment prospects and security clearance (for government employees).
If you completed a short sale, your report is considered more favorably by creditors like Fannie Mae and Freddie Mac. You can apply for an FHA loan and be back in a house you can afford in as few as 2 years. Your credit score takes a hit, but the effect is relatively minor (as little as 50 points) – more like a bump in the road.
Short Sell Before Trouble
Timing is extremely important 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 documentation from you, the realtor and my office. Even after the foreclosure process begins, a short sale is better for your credit than the foreclosure. But at some point, bankruptcy becomes your last, best recourse.
The benefits of a short sale allow you to move on with life more easily than the alternatives, but do you qualify?
I focus on your best interests, and I will help you move forward in the way that brings the greatest benefit to your financial prospects. Give me a call today for a free short sale consultation at (215) 854-6342. Let me help you put this difficult period behind you and move forward into the life you deserve.
*Find more information about the tax implications of a short sale in IRS Publication 4681 under Canceled Debts and Price Reduced after Purchase.