If you are facing potential foreclosure, you may have heard the term “short sale.” Here we will discuss the difference between a short sale vs. foreclosure, and what you need to know.
What Is a Foreclosure In Atlanta, Georgia?
As defined by Redfin… “A foreclosed home is one that has been repossessed by a lender because the owner was unable to make the mortgage loan payments. “. So essentially if you don’t make payments on your home month after month, the lender has the right to take the home back at some point.
Makes sense right? If you loan your car to your brother for a day and you don’t hear anything from him in three weeks, you are going to start calling him to bring your car back! Similar line of logic here.
Ok, so if the borrower goes several months without making the monthly mortgage payments, the lender is going to start calling and sending mail to find out what’s up. If the lender & borrower fail to make a deal, then the lender may send a Notice of Default, and start the pre-foreclosure process.
During pre-foreclosure, there is a lot of activity to work out a deal to prevent the house from going all the way into foreclosure.
- The lender will be blowing up the borrower’s phone. Truth is that the lender doesn’t want to foreclose on the property. It’s time-consuming and costly for them. What they really want is to work something out with the borrower so that they can start getting monthly payments again. If you are the borrower – make sure you answer the phone when they call!
- Investors and wholesalers will reach out to see if they can buy your house at a discount. Now it’s super important to be careful here. These investors that call or text may just be trying to “steal” the house for a rock-bottom price because they know that the borrower is headed towards foreclosure. It’s important for the borrower to know how much her house is worth so that she doesn’t fall victim here. Just because someone is headed towards foreclosure doesn’t mean they deserve to be cheated. Lots of wholesalers take pride in how much money they can get out of homeowners when they are already scared and facing financial distress. Don’t let that be you.
- Genuinely helpful agencies may call to provide you with the information and resources needed to help the borrower save the house if she wants to keep it, or sell it the right way if she wants to sell. By selling the right way, I just mean to sell it fairly. The goal is a win-win for everyone involved. This is how we work at Homeowner Help Today.
If no deals can be worked out during pre-foreclosure, then the house goes into foreclosure and is put up for auction on the courthouse steps. If the house is purchased at auction, this means almost certain eviction for the borrower and massive credit damage that can take years to reverse.
Don’t let it get this far!
If the house doesn’t sell at auction, then it becomes an REO (Real Estate Owned) property, which I’ll discuss in upcoming posts.
Depending on the state that you live in… a foreclosure can work in different ways. Georgia is a Non-Judicial Foreclosure state which means that the process goes much faster than in Judicial Foreclosure states. So you don’t have much time to get this taken care of. Get on the phone with your lender, or reach out to us for assistance.
You can also check out the HUD website for foreclosure resources or to speak with a HUD-approved counselor.
What Is A Short Sale?
In a short sale, the home is still owned by the borrower and is in pre-foreclosure.
From Investopedia… “A short sale in real estate is when a financially distressed homeowner sells his or her property for less than the amount due on the mortgage.“
The lender may agree, in some circumstances, to allow the borrower to sell the house for less than the amount due on the mortgage. The key word here is “agree”. The lender is in control here, and they don’t make this process easy.
Going back to the car analogy…..
Let’s say that when you called your brother to bring your car back you found out he drove it across the country and you’re not sure he will ever bring it back. Also, let’s say the car is worth $10,000. Instead of driving it back, he offers you $3,000 just to keep it. You agree to take the $3,000 and be done with the hassle of trying to get your car back.
This is kinda what we’re talking about with a short sale. The bank will agree for the house to be sold for less than they are owed just to be done with it. Remember that they also don’t want to go all the way into foreclosure.
A short sale, once the lender agrees to it, can take several weeks to several months to finalize, and it involves a LOT of paperwork (we’re talking about banks here after all….)
There are some definite upsides to a short sale, however…..
- Both the borrower and lender avoid going through the foreclosure process
- Both parties strike a deal and get that stress off their shoulders
- A short sale doesn’t damage the borrower’s credit nearly as much as a foreclosure.
- Borrowers who are foreclosed are often ineligible to purchase another home for 5-7 years with a traditional mortgage, but a borrower with a short sale may be able to obtain a loan much sooner depending on how much the short sale affected their credit
Short Sale vs Foreclosure – Your Options
As many Americans struggle during this Covid-19 economy, many are having a hard time making monthly mortgage payments. Rather than going through the foreclosure process, some homeowners are reaching out for help with the short sale process.
If this is you, then let us help you.
We can get on the phone with you and your lender to determine what their process is for a short sale (or a potential loan modification). We can then help you gather the necessary paperwork and get it filed correctly to help the process go quicker and smoother. If you just don’t want to go through any of the hassles to keep your house, then we can help you sell it for a fair price.
Our suggestion is always this:
- Talk with your lender to discuss ways that they can work with you. If you have issues with your lender, we can help. This stuff can be confusing and stressful. Just reach out to us on our Contact page and we’ll be happy to help.
- Attempt a short sale or another program that your lender offers that forgives part of your loan or creates a more affordable monthly payment. Something that gives you time to get back on your feet, get your job back, pay off your credit cards, etc.
- If the bank isn’t willing to work with you very much… your best option may be to sell your house. We can help you with this as well. Just fill out the form here >>
- Foreclosure. Last resort is to let the house go into foreclosure. This is the worst possible scenario. It’ll harm your credit and you could still be left with money owed to the bank even after the foreclosure is finished.
By knowing your options and allowing us to help – you can avoid foreclosure, dodge a significant blow to your credit score, and be able to purchase a new home when circumstances improve. A foreclosure on your credit report makes that possibility extremely difficult for 5-7 years, so if you have the opportunity, a short sale can be the better option than a foreclosure.