A short sale is often a desperation move, albeit one that is sometimes successful and useful in the right circumstances. Understanding the difficulties and challenges of successfully completing a short sale is extremely important before considering it as an option.
First things first: what is a short sale? A short sale is the action of selling your house in order to pay off debts to your lienholders (whose debt is tied to the value of your home), even though the total price of your home is not enough to fully pay off these debts. In order to do this, however, all of your lienholders must agree to the short sale and release their liens. Why would a creditor release their liens? While this action might leave the lender with a deficiency, it does help them collect on some (or in some cases all) of the debt they are owed. Depending on the situation, creditors may also be able to continue collecting on owed debts beyond the short sale. The most common types of liens (other than first and subsequent mortgages) include unpaid taxes, spousal or child support, and utilities payments.
The main reason homeowners attempt a short sale is to avoid foreclosure. Many homeowners view foreclosure as the worst possible scenario, partly because of the stigma associated with foreclosure and the perceived financial implications to their credit score and future prospects. While a short sale can help avoid foreclosure, that may not be as big of an advantage as it seems. While it’s not foreclosure, a short sale still has an adverse affect on your credit score because of the debt that is associated with it. Credit score alone should not be the driving factor in a short sale. If it is, then you may need to talk about your situation with a financial analyst and a foreclosure attorney to gain further perspective about your debt and your home.
Credit score implications aren’t the only concerns when it comes to the risk of a short sale. The fact that any one lienholder can terminate the proceedings means that you can spend a lot of time and money pursuing an option that won’t yield anything. You may also run into an assortment of problems trying to negotiate with your mortgage company. Your mortgage lender has the most to lose in the case of a short sale because it has to concede some of the money it is owed to lower-priority lienholders. While mortgage companies may choose to release the lien so that it can cut its losses and get some money right away, these companies are usually very slow to respond and can make the process a headache.
Clearly, there are a lot of problems with attempting a short sale. That being said, it’s not an option you should definitely write off if you’re in serious debt. The important thing is to talk to a trusted foreclosure expert to understand how a short sale would affect your personal financial situation. At Marks Law Firm, we’ve been helping those in debt and foreclosure for years, and we can give you a free consultation today. Give us a call, and get your financial life back in order!