Can't Afford Your Mortgage? Short Sale vs. Foreclosure

Can't Afford Your Mortgage? Short Sale vs. Foreclosure

With an increase in interest rates for adjustable-rate mortgages and the change in principle for interest-only loans, home values are collapsing, making it more difficult for homeowners to afford their mortgage payments.

When unexpected situations such as job loss, death in the family, health emergencies and other unmanageable expenses occur, homeowners often feel forced to "walk away" from their homes. When refinancing is no longer an option, saving their home depends on a short sale or foreclosure. But which is the better option?

A short sale occurs when loans against a property are greater than what the property can be sold for. A lender agrees to take less than the full loan payoff in return for the property. Short sales are typically set up to avoid foreclosures and are often preferred by lenders, since the current owner helps find the next owner. Foreclosed properties may not sell at auction, which would mean lenders would need to maintain, list and sell the property themselves.

A foreclosure begins when the homeowner defaults on mortgage payments. It is an action taken by a bank or lender to repossess a homeowner's property, which terminates all the rights of the homeowner. After a foreclosure, the real estate becomes the property of the original lending institution.

Short sales carry less negative effects on a homeowner's credit than foreclosures and are seen as less risky. Short sales affect a homeowner's credit report by 80 to 100 points, whereas a foreclosure typically drops a credit score by 200 to 300 points.

After a short sale, it takes homeowners about 2 years before they can qualify for a standard loan on another property, whereas after a foreclosure, a homeowner needs to wait about 5 years before they can qualify for a standard loan on another property.

In a short sale situation, the homeowner remains on the title of the property as the official property owners that are trying to sell the property. In a foreclosure, the homeowner takes no part in the sale, since the lender takes complete possession of the property.

One important note: When short selling, have an attorney reviews or to manage process, so all your home-related debts are included in the short sale if possible. Tell your attorney about lines of credit, second mortgage and liens.

A real property attorney can help determine the status of your mortgage and help you decide if a foreclosure or short sale is best for your situation. If you are facing financial difficulties and can no longer afford to pay your mortgage, contact Attorney Search Network. We can help you find a real estate attorney in your area that can advise you and assist you on a foreclosure or short sale.

If you have any questions about the information provided above, please contact Attorney Search Network.

Contact Attorney Search Network for an Attorney Referral to an pre-screened Real Estate Lawyer with Mortgage experience.

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