Friday May 26, 2017

Short Sale Answers

A short sale is one possible alternative to a foreclosure when loan modification fails.  It should be seen as one of your last resorts.  When you arrange a short sale with your lender (an option your lender may or may not consider), the lender agrees to accept less for the house than it is currently worth.

Why would a lender do this?

There are a number of reasons, but a couple of them are that the foreclosure proceedings can be not only timely but expensive, and the bank may see this as an opportunity to make off with the smallest possible loss.

What are the benefits for you?

If you do a short sale before lapsing on your payments—and then manage not to lapse on your payments until the end of the process—you may protect your credit to a minor degree.  The main benefit though is that you can purchase another home within the next seven years, assuming you aren’t sixty days or more delinquent on your payments.

Even if you’re sixty days or more late, you still get to buy a home after a two year waiting period.  Under Fannie Mae guidelines, you aren’t allowed to buy a home for seven years if you’ve gone into foreclosure.

While a lot of people think the biggest reason to do a short sale is to protect their credit, in reality the biggest reason is the Fannie Mae rules.  You may be offered a “cash for keys” type of payoff to get out of the house quickly in either a short sale or a foreclosure scenario.  A short sale does not erase your mortgage debt, only discounts it.  You’ll still owe the money on the house after you leave.

So is a short sale right for you or not?

It all depends on your plans for the future.  Take a realistic look at your finances.  Would you be able to afford payments on a less expensive house within the next seven years?  Do you even want to buy another home?  If you have no plans or wishes to do so, then you may actually save more money with a strategic fault.  If you are set on buying a home, however, you will want to get a short sale in order to protect that option.

It’s not always easy to get a bank to agree to do a short sale.  That’s why there is a government program in existence to facilitate the process.  This program is called Home Affordable Foreclosures Alternatives® (HAFA).  HAFA provides guidelines and timeframes for getting through a short sale process and also gives banks incentives to comply and help you out.  It doesn’t guarantee your lender’s cooperation, but it may make the process simpler and faster for both parties involved.

Before you consider a short sale, don’t forget to investigate the loan modification programs which are offered by the government including the Home Affordable Modification Program® (HAMP) and the Home Affordable Refinance Program® (HARP).  If you’ve recently lost your job, the Home Affordable Unemployment Program (HAUP) may be able to help you as well.  Only after these options fail should you consider a short sale, deed-in-lieu, or strategic default.

A lot of people will try and convince you that a short sale is better than a foreclosure.  Agents who conduct short sales do get commissions, so keep that in mind when they talk to you.  They have a vested interest in getting you to go for the short sale, and its their pockets they are concerned with, not yours.

That being the case, a short sale may still be best for you.  It may not.  You should make the decision based on your own self interests though and those of your family.  Likewise, it is important not to be steered by the social stigmas associated with foreclosures—those too were put in place by short sale agents.  Go over your own finances and review your future goals with your family and come up with a decision based on your own individual needs.

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