Author Box
Articles Categories
All Categories
Articles Resources

Should I Short Sale My House? Top 11 Questions You Must Ask Yourself Before Deciding

February 16, 2012 | Comments: 0 | Views: 143

If you're confused with which option to stop foreclosure, then the following short sales vs foreclosure information will help you make the right decision.

I know that you are not thinking clearly because you're worried about foreclosure & your family becoming homeless, having trouble sleeping at night due to worry, feeling stressed about making the wrong decision, feeling embarrassed your neighbors may find out, fear about getting a bad credit score & foreclosure appearing on your credit report. You would not be a human being if you were not having trouble thinking clearly with your state of mind clouded with so many concerns and worries.

Are You Sure You Understand Clearly... What Is A Short Sale?

It is one of your options, so when your property is sold, the money the lender gets from the sale is less than the balance you owe on the mortgage debt balance. So if you cannot afford to re-pay back the total liens, the holders of the liens will release it and accept the reduced amount that you currently owe on the house.

What Are The Tax Consequences Of A Short Sale?

The amount that's being taxed is the forgiveness amount on the mortgage or the difference of the mortgage and the property's final selling price. This is considered income by the IRS and a 1099 form from the lender will be provided after the short sale transaction.

There's an exception which is called the Mortgage Forgiveness Debt Relief Act of 2007 which terminates this tax up to two million dollars which applies only to residential owner occupied real estate. For married couples who do their taxes separately, the limit is split between them. If someone does not qualify for this, the bank may agree to report the forgiven amount as a gift. In this case, the short sale cannot be taxed by the IRS.

Another alternative is to file for... bankruptcy or liquidation...!!!

How Does A Short Sale Work? - 7 Steps Short Sale Process

* You must contact the bank to discuss the policies and procedures.

* You must compose a letter to release documentation about the loan and the property. This information is distributed to the buyer and the escrow agency.

* The lender will examine the settlement statement which entails the selling price and what is left of the loan balance. Closing numbers such as commissions, fees, and expenses are included.

* You have to submit a hardship letter which will describe your financial problems. It is a good idea to refer to some short sale hardship letter examples to use as a guide before composing yours. It should be short (a few sentences) and not lengthy for easy reading. Make the reader feel the extreme anxiety as to why you can no longer afford the property. So it's imperative to build a strong case. Most importantly do not blame the lender. Remember the goal is to request assistance and not to offend.

* These documents include banking statements, investment portfolios, employment paystubs and other financial records.

* The lender will consult with the broker to evaluate the structure of the house and how much it's worth when comparing it to other properties.

* The lender will examine closely that the purchase agreement and commission amounts are agreeable to all the parties.

How Does A Short Sale Affect Your Credit?

If your credit score is important too you and wish to protect it at all cost then... this option is a safer bet for you since it is not as a serious as, when the bank forecloses on your property. The FICO score damage to your credit report is less.

Example: Your FICO can drop between 50 to 150 points Versus 210 to 420 points for a foreclosure

10 Advantages To Doing A Short Sale

* Top benefit is - Debt forgiveness which is when there is no monies owed after this transaction. For example, if your home is worth $200,000 and it's sold for $100,000 the left over amount is cancelled by the banks. Also, what's eliminated includes closing costs, taxes and other fees.

* You don't have to pay rent or make mortgage payments during the short sale process

* You're in the driver seat not the lender

* You'll avoid the embarrassment and your credit report showing a foreclosure

* You can be up to date with your mortgage and still do a shortsale

* Your home will be sold like any other home in your neighborhood... it's your secret

* Credit Score Damage... is less (FICO drops 50 points - 150 points Vs 210 to 420 for a foreclosure)

* Deficiency Judgement - can be avoided by making sure your lawyer or realtor has negotiated with your lender in writing to not come after you to collect the deficiency balance owed after you sell your property

* You can get Tax Forgiveness based on the Mortgage Forgiveness Debt Relief Act of 2007 (Note: Consult with a professional first accountant, IRS, to make sure yours will be forgiven.)

* You may qualify for some cash as a closing incentive. These cash incentives range from $2,000 to as high as $35,000 paid by some banks, HAFA, FHA (hud) to short sale your home. You can use this money you receive at closing for moving and relocation costs in addition to whatever you save up while youdidn't make payments to the bank.

* You'll end up with a lower living expense related to rental payments which will be less in most cases.

Disadvantages To Doing A Short Sale

* Cannot stay and save money as you will be expected to move out as soon the deal closes

* Potential tax consequences if you borrowed against your principal and used the funds for some thing else other then house related expenses, once again consult with a professional short sale lawyer, accountant to make sure you will not have to pay back taxes to IRS.

* If you have multiple lenders who may have a lien to your property is can make it extremely difficult to do a successful short sale. Make sure you check to see if you have more then one lender if so... slow down and consult with your attorney again to see if it is worth it to do the short sale

* A foreclosure can take six to twelve months, credit scores have a greater negative impact, and the waiting period of purchasing another home is five to seven years. In a short sale, the process can take one to six months, the penalties on the credit scores are less severe, and there's a greater chance of purchasing a future home by re-applying for a new mortgage within two years.

2 Advantages To Letting The Bank Foreclose On Your House

You can stay longer in your property as opposed to a short sale. Save the money you would paying to your lender, you pocket it and save it to move out to your next new apartment with your family and start over with the least amount of hardship if you have some money at least to move on with your life after foreclosure.

3 Disadvantages To Letting The Bank Foreclose On Your House

* Top Disadvantage - associated with foreclosure is what it does to your credit score rating. A house foreclosure will appear on your credit report because it is a loan with the mortgage lender. As a result, for any credit in the foreseeable future, a financial institution will be able to see that you had a foreclosure which will remain on your credit record for at least 7 yrs.

* When the mortgage lender actually sells the house and is sold at an sum less than what is due to the lender, you are liable for this difference. If you are unable to pay the difference, then you may have to file for bankruptcy also.

* A foreclosure will be handled as a very serious blemish on your credit history. You will have a harder time getting a lender to lend you money to buy a house or even other personal items. Bottom line your credit history is "Killed" with one powerful shot.

* Job hunting will become more difficult. It is a known fact that potential new employers will look at your credit history background, in addition with some employers if they see a foreclosure on your record some employers will reject your application immediately regardless if you are the best man or woman for the job and position.

How Long Can You Stay In Your House After Foreclosure?

This differs state to state but in some instances it can be as long as four months to one year until the individual is forced to vacate indefinitely. This procedure in New York State falls under two categories which is judicial foreclosure and non-judicial foreclosure.

Judicial Foreclosure - Is when the lender filed a complaint against the borrower and obtain an order of sale from the court.

Non Judicial Foreclosure - Lender not required to file a complaint in court, is given authority to sell and foreclose quickly.

Which Of These 12 Foreclosure Alternatives Did You Skip Over That Can Hurt You?

* Refinancing is a challenge for the borrower having limited equity and poor credit.

* Reinstatement can make a loan current by paying the amounts due.

* Short term forbearance allows for the termination of up to three payments or a decreased amount until six months. When the forbearance time period is over, the seller must comply on a longer repayment plan to catch up on those payments missed.

* Long term forbearance is very similar to short term forbearance with a few exceptions. This is designed for severe neglect and permits a reduced in payment for four to twelve months

* Special Forbearance can schedule a repayment plan depending on the vendor's financial portfolio. There may be a temporary decrease or postponement of the seller's payments. The individual must have experienced a current unintentional cutback in income or living expenses have increased. Documentation must be submitted as proof.

* Deed in Lieu vs short sale - When a seller may be able to willingly return their residence to the lender. This may not salvage the home, but will assist their probability of obtaining another mortgage loan in the future. The owner can qualify under these guidelines: if they have not been paying and do not qualify for any other options, their attempt at selling the dwelling prior foreclosure failed, and they do not have another FHA (Federal Housing Administration) mortgage in default

* Cash Sale relies on the owner's equity. This occurs when the seller gets cashed out on the residence and the whole thing is paid in full. The property needs to be given at a discounted amount so it can be a worthwhile investment.

* Repayment combines past due amounts with regular monthly payments

* Modification is when the owner and the mortgage company will have a written agreement which modifies some of the stipulations of the note

* Another strategy to stop foreclosure is to make an attempt to come up with a portion of the money to apply towards the shortage which is called the contribution figure or the good faith payment. The monetary amount is between thirty five to fifty percent of the total amount that's needed to bring the loan up to date. This tip proves to the lender that you're interested in having the loan in good standing.

* Consult with a foreclosure defense attorney

* Real estate investors who buy houses for cash

* " Special Program Options " Not well known & experts don't share. Call Pandel Enterprises 718-577-2782

10 Ways You Can Reach Out For Foreclosure Help

* U.S. Department of Housing and Urban Development (HUD) Telephone: 1-800-569-4287

* Neighbor Works Spanish or English Call 1-888-995-HOPE

* National Community Reinvestment Coalition (NCRC) 202-628-8866

* National Council of LaRaza (NCLR) NCLR may be the biggest national Hispanic civil privileges and advocacy organization within the U.S. 202-785-1670

* Neighborhood Assistance Corporation of America (NACA) 1-888-302-NACA

* Fannie Mae's HomeStay Program 1-877-722-6757

* Freddie Mac " Don't Borrow Trouble Program "

* Nation's Association of Consumer Advocates 202-452-1989

* Home Ownership Preservation Foundation

* Project Lifeline Initiative Contact Your Lender To See If They Offer It

There's a wealth of information here and no one is expected to know everything overnight. These processes are complex, but with the appropriate real estate professionals working on your side, this anxiety provoking area should be clearer to comprehend and answer your question on why should I short sale my house.

Note: The information provided in this article is not meant to replace legal professional advice from attorney. This is article is meant to be a guide and to help you sort out quickly & easily the best option between the " short sale vs foreclosure " option. Before you make any decisions after reading this article you should seek advice 1st with a real estate attorney or a free foreclosure assistance - non profit organization.

To get your Free Report Now " How To Sell Your House Fast In A Slow Housing Market " click here Discover more educational articles dealing with foreclosure - click here now Short Sale vs Foreclosure!

Source: EzineArticles
Was this Helpful ?

Rate this Article

Article Tags:

Short Sale Vs Foreclosure


Should I Short Sale My House


Tax Consequences Of A Short Sale

The documents are inevitable to assess your age, income, employment and residence. For the loan to be petitioned from the bank, you need the right procedure of application.The documents are

By: Simon Liva l Real Estate > Buying l November 20, 2012 lViews: 257

The main reason why people tend to be apprehensive about moving homes is that it entails packing everything in the home, transporting it and then unpacking it in the new home. The entire process of

By: Ringo Star l Real Estate > Moving Relocating l October 27, 2012 lViews: 210

There are a number of benefits to owning a second home. Buying to let is a long term investment. The property will usually accumulate value over time and also can generate rent on a shorter term

By: Alan Trotter l Real Estate > Investing in Real Estate l October 19, 2012 lViews: 240

Building a home, especially your first one, can be an incredibly daunting task - there are a number of factors, including budget and planning, that must be taken into account before any sort of

By: John K. Taylor l Real Estate > Building a Home l July 10, 2012 lViews: 333

When you're ready to sell your house, the first thing you'll probably do is find a real estate agent to help you through the process. It can be so inviting to seek out the discount Realtors who offer

By: W Josh Anderson l Real Estate > Selling l July 10, 2012 lViews: 262

You see the signs everywhere, especially in a strong economy: For Sale By Owner. For some reason, many people believe they'll do a better job of selling their homes without the assistance of a real

By: W Josh Anderson l Real Estate > Selling l July 10, 2012 lViews: 240

In today's real estate market, potential buyers frequently find short sale homes and houses close to foreclosure. Some homes have already been foreclosed and are now for sale by financial

By: Jeremy P Stanfordsl Real Estate > Foreclosuresl June 01, 2012 lViews: 202

Buying foreclosures at a distance can be challenging. Use these tips to help you make good decisions.

By: Aloysius Aucoinl Real Estate > Foreclosuresl June 01, 2012 lViews: 164

Fearing losing their house is quite nerve-racking for a number of house owners. Regrettably, foreclosures are happening a lot more frequently than previously and are frequently a result of breakup,

By: Steven Johanssenl Real Estate > Foreclosuresl May 31, 2012 lViews: 183

If you are trying to decide whether hiring a foreclosure attorney is worth your time, maybe it is time for you to take a better look at your current situation. If you have been served with a

By: Abraham Avotinal Real Estate > Foreclosuresl May 31, 2012 lViews: 157

Home foreclosure as suggested by its name means a scenario where a property owner is not able to make repayments of principle and interest repayments on their home loan, therefore the loan provider,

By: Demetrius Weatherspoonl Real Estate > Foreclosuresl May 30, 2012 lViews: 199

On the subject of purchasing a new house, most likely the primary thing on everyone's brain is if they will be able to locate the home they desire within their budget. It looks like everywhere you

By: Demetrius Weatherspoonl Real Estate > Foreclosuresl May 30, 2012 lViews: 165