DEFINITION: SHORT SALE vs FORECLOSURE
A short sale, in basic terms, is the selling of a property in which the money generated from the final sale falls short of what the owner still owes on the mortgage. If your property is not worth more than what you owe, and you are behind on your payments, selling short may be an alternative to foreclosure. Foreclosure is simply the process the Lender goes through to repossess your home.
LENDER (your bank) and SHORT SALES
When a short sale takes place, many lenders will agree to accept the proceeds of a short sale and forgive the rest of what is owed on the mortgage, especially when the person is not making their payments and the person has no other viable assets for the bank to chase down. Why? Why would the Lender accept less than you actually owe? There are a lot of reasons, but primarily it’s because they simply want to cut their losses. After all, the Lender made a deal with you. They lent you money so you could take ownership of a property. You agreed to pay them back for the property PLUS interest. But the whole deal revolved around the value of the house at that time. The LENDER, not you, decided that the property’s value would cover the balance of the loan in the event that you didn’t make your payments. Collateral. It’s not your fault that the Lender didn’t account for a drop in property values. The Lender put the money up, rolled the dice, and lost.
WHO IS A CANDIDATE FOR A SHORT SALE?
Are you and your property a candidate for a short sale? To answer that, you first have to answer a handful of other questions. What is your current financial situation as compared to when you first obtained the mortgage? Has it changed for the better or worse? Have you had a financial burden occur since you first obtained your mortgage, and if so, what was the reason? Was it unemployment, loss or drop in income, divorce, death of a financial contributor? Do you have a lot of other assets which could be sold to pay for the deficiency on your house? Do you have other properties in the same financial condition of being under water?
The only way to correctly make your OWN decision on whether to attempt a short sale or not, is to educate yourself. Never take the advice of a friend, family member, the internet, a mortgage broker or even a real estate broker such as myself, as your only source of information.
Remember, a foreclosure is the BANK’S choice as a last resort to repossess your property. A short sale is YOUR choice to initiate before foreclosure occurs. Once you have decided to learn more or get the ball rolling, please call us anytime. There is no such thing as a dumb question! We are right here in Naples to help! Call us at (239) 417-2222.