Facing Foreclosure? 'Short Sale' Could Help
Last, best option could help save you money and protect your credit rating.
Feb. 8, 2008— -- As the national mortgage crisis threatens millions of Americans, more people than ever are choosing to short-sale their homes rather than face foreclosure.
A short sale occurs when a lender agrees to allow a homeowner to sell the home for less than the mortgage owed on it. The lender either absorbs the difference or requires a borrower to pay it back in a lump sum judgment or payment plan.
This allows homeowners to walk away from their houses without going into foreclosure and seriously damaging their credit.
In 2007 there were 2.2 million new foreclosure filings in America, up nearly 80 percent compared with the previous year. The average foreclosure cost lenders $40,000, and the last thing banks and lenders want is more houses to sell.
For many, a short sale is now looking like the last best option. Though it still diminishes one's credit rating, the short sale is often vastly preferable to other options.
Real Estate Contributor and "Wall Street Journal" reporter Wendy Bounds shared the details on what you need to know about short selling your home on "Good Morning America" today.
The first thing you need to do is prove to the lender that you can't make payments at the adjustable level. That will require some filing of paper work, some documentation showing that your income has gone down.
The second thing is to find a buyer who is willing to buy the home at a discount rate. To do that you have to get a knowledgeable real estate agent or attorney involved, maybe someone who specializes in short sales. That's important because pricing is incredibly important in the search to find the right buyer.
Lastly, you need to get the lender to approve the sale once you do find a buyer. That's why it's important to work with the lender as much as possible. That's going to make it that much easier for you in the long run.
If the homeowner isn't able to complete a short sale, the next option is either foreclosure or handing over the deed to the bank in lieu of foreclosure. Those options are worse for your credit than a short sale — that's why it's so important to get the pricing right. Work closely with an agent who specializes in this kind of thing and work closely with your lender so you'll know what to expect.
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