Homeowners struggling to make mortgage payments don’t want to even think about the “f-word.” In this context, the f-word is “foreclosure.” While it certainly isn’t the end of the world if your house gets foreclosed by your mortgage lender, it’s worth considering alternatives. One option for borrowers/homeowners who owe more than the house is currently worth should think about executing a short sale.
How Does a Short Sale Work?
Again, the most important condition a homeowner must satisfy before proceeding with a short sale is being underwater on the mortgage. In other words, the homeowner owes more on the mortgage loan than the house’s current value. If you, the homeowner whose mortgage is underwater, convinces your lender to accept a short sale, the balance you’d otherwise still owe will be forgiven.
For example, let’s say you purchase a home for $350,000. Your spouse loses her job, making it quite difficult to make your mortgage payments (she was the breadwinner). To make matters worse, the value of your house plunges due to market conditions. It’s now worth $305,000. However, you still owe $330,000 based on the agreement you signed with your mortgage lender.
After a few months of missed payments, you could be considered in the pre-foreclosure phase. Foreclosure is a somewhat complex process we won’t explain here, but the effects of foreclosure include:
- Damaged credit;
- Inability to obtain certain mortgage loans for several years;
- Deficiency balance (may be payable by the borrower); and
- Stress of getting kicked out of your house and finding a new place to live.
If things keep going the way they’re going, you know foreclosure is in the near future. On the other hand, selling your house means you’d still technically be on the hook for $25,000 ($330,000 minus $305,000).
However, in exchange for giving your lender the proceeds from the sale AND the house–its collateral–that $25,000 might get forgiven. That scenario describes a successful short sale. It is important to note that a short sale is still a negative mark on your credit score, but not as negative as a foreclosure
Contact A Florida Real Estate Lawyer to Protect Your Rights
Short sales have a number of benefits over foreclosures. It is not the only alternative to foreclosure, though, and is not without its disadvantages. A skilled attorney can help you determine whether or not a short sale is truly your best option if you’re struggling to pay your mortgage. If you decide to proceed with a short sale, it’s not wise to go it alone. An attorney will help protect your rights and ensure the transaction goes as smoothly as possible.
The team at Alvarez Law Group provides proficient yet caring legal services to the great people of South Florida. We’d be honored to represent you and help resolve your legal matter. We offer discounts on our closing fees for veterans, first responders, and members of law enforcement. Call us at (786) 620-2820 to discuss your needs today.
Alvarez Law Group
Latest posts by Alvarez Law Group (see all)
- The Legal Side of Buying Waterfront Property in Florida - April 15, 2024
