| Many people are conflicted between short sales vs. | | | | qualified buyer lined up before approving short sale |
| foreclosure. This article provides a summary of the | | | | transactions. Some banks will give borrowers time to |
| two financial options available to borrowers who can | | | | list their home through a realtor and locate a buyer. |
| no longer afford to make their mortgage payments. | | | | This is usually two or three months. If a buyer is not |
| Individuals facing foreclosure or considering applying for | | | | located, lenders commence with foreclosure action. |
| short sale approval should consult with a real estate | | | | There are two types of short sale agreements. The |
| attorney to determine which option is best for their | | | | first is Payment in Full without Pursuit of Deficiency |
| situation. | | | | Judgment. This is the preferred choice for borrowers |
| Short sales vs. foreclosure require borrowers to | | | | because lenders accept the sale price of the property |
| adhere to certain protocol established by their | | | | as payment in full toward the mortgage note. |
| mortgage lender. Neither option allows homeowners to | | | | The second agreement is a Deficiency Judgment. |
| remain in their home. Short sales gives borrowers the | | | | Some lenders hold borrowers responsible for the |
| opportunity to sell their home for less than is owed on | | | | deficiency amount between the sale price and loan |
| the mortgage note, while foreclosure forces | | | | balance. If borrowers are unable to pay the deficiency |
| borrowers to return the keys to their lender and | | | | at the time of closing, the lender issues a judgment |
| relinquish the property. | | | | which remains on borrowers' credit history until full |
| Short sales generally offer the best financial solution | | | | repaid. |
| for borrowers who have become delinquent on | | | | Foreclosure generally takes between three and twelve |
| mortgage payments but have not yet received | | | | months to complete. Banks initially issue a Lis Pendens, |
| foreclosure notice from the bank. This type of real | | | | which gives borrowers time to work with their lender |
| estate transaction requires approval from the lender. | | | | to obtain a loan modification. |
| Both borrowers and their property must meet certain | | | | Loan modifications are sometimes offered to |
| criteria before short sale approval is granted. | | | | borrowers who have encountered a temporary |
| With short sales, borrowers must contact their bank's | | | | financial setback. When banks modify loans they alter |
| loss mitigation department. Delinquent mortgage | | | | the terms of the note to help borrowers get back on |
| accounts are assigned to a loss mitigator who works | | | | track. This can be accomplished by temporarily |
| with homeowners throughout the process. When | | | | reducing or suspending mortgage payments, or by |
| lenders agree to enter into short sale arrangements, | | | | rolling the delinquent amount to the end of the loan. |
| borrowers are required to undergo financial | | | | If borrowers do not qualify for a modified loan or do |
| examination. | | | | not possess the financial ability to continue making |
| Borrowers must submit a short sale packet consisting | | | | payments, the bank has no choice but to foreclose on |
| of numerous financial documents. Lenders generally | | | | the real estate. When property is foreclosed, the bank |
| request copies of banking and investment statements, | | | | first places it for sale through public auction. If the |
| payroll records, tax returns, list of income and | | | | house does not sell through auction, it is returned to the |
| expenses, and real estate related expenses such as | | | | bank. |
| property tax records and homeowners' insurance | | | | Bank owned homes are sold directly through the bank |
| premiums. | | | | or a realtor. When foreclosure properties are sold for |
| Most banks require homeowners to submit a short | | | | less than the amount due on the loan, banks can issue |
| sale hardship letter outlining events which caused them | | | | deficiency judgments against borrowers. |
| to become delinquent on their mortgage note. Lenders | | | | One solution to avoid foreclosure deficiency judgments |
| prefer handwritten letters of hardship providing dates | | | | is to request a Deed in Lieu of Foreclosure. Similar to |
| and details of events that caused their financial demise, | | | | 'Payment in Full', a deed in lieu releases borrowers |
| along with actions taken to rectify the situation. | | | | from repayment of the deficiency amount. |
| Mortgage lenders usually require borrowers to have a | | | | |