Foreclosure versus short sale

Choose Your Way: Foreclosure Or Short Sale

Are you confused whether to go for a short sale or foreclosure? Let us have a brief insight on each of these. Keep on reading to clear all your doubts.

Short sale:

A short sale is the selling of a property in which the income or profits from selling the estate will be less than the balance secured by the lender and the property owner is not able to pay the lender the full amount, The lender agrees to liberate the borrower on the property and agrees to take less than the actual price payable on the debt. Any unpaid balance remaining to the creditors is called a deficiency.

To meet the criteria for a short sale you require:

·         The house must be equal to or less than the amount of your debt.

·         It is important to give evidence that you are in financial trouble, for example, jobless, decrease in income, any medical condition and it’s expenses, even conditions like divorce, property trouble, etc.

Short sale agreements do not always release the debtor from their responsibility to pay back any shortfall after the sale, unless particularly settled between the two parties.

Foreclosure:

Foreclosure is a particular legal process in which a person who lends money tries to get back the balance of the loan from a borrower who has not made regular payments for some time now. To the lender, this results in the sale of the property utilized as the security for the loan. This right is obtained by court order or by particular statutory procedure.

Foreclosure Liabilities:

There is a huge difference between foreclosure and short sale. It you choose foreclosure, you give away your house or property and get out of any money trouble. Even though you free of the debt, you can still be liable to the IRS for taxes. In short, if your asset or property goes into foreclosure then you are accountable for the discrepancy of what is payable on the estate versus what is sold in the auction, or the deficiency balance. You must understand that this is specific to the State and in almost all States you will be accountable for the shortfall, but in few States the bank may not always be able to follow the debt. Therefore, before entering the foreclosure process you must clarify your State’s laws.

There are many other options you can turn to before you decide to venture into foreclosure. You have an option of short sale, loan adjustment, etc. Generally, a short sale is a very good choice, but not always. It depends on many other factors pertaining to the borrower. So now there are many options you can opt for before going into foreclosure.

Bank Involvement:

Generally people feel that banks will not easily help in a short sale. But on contrary, banks are also interested in a short sale over foreclosure. The reason being, foreclosure requires more time and banks have to expend more money. Banks are full with foreclosures and therefore, they opt for short sale. It is better than increasing the foreclosure lists. You can easily qualify for short sale, the only thing you need to do is to give  good evidence of your financial trouble, and also give an evidence of the worth of your house. Now, even the government participates in short sales and there is incentive for the short sales.

More recently, short sales have increased in range from 10% to 50%. In the recent year, there has been more increases seen in short sales rather than foreclosure. Due to inflation, recession, and other financial changes in the market, more people are going into short sale which is feasible for the consumer and banks.

© Global Realty & Investment Corp