Navigating the perilous seas of financial terminology can sometimes leave you seasick, especially when trying to find the best option for your current situation. Short sales are the epitome of this. While at first glance they may seem like something to avoid - under the right circumstances - they can be a good option for homeowners in need of relief.

What is a Short Sale?

Short sales are when the owner sells a home for less than what is owed to the mortgage company. This can carry dire consequences for the homeowner because the mortgage company still needs to be repaid. This can affect the owner’s credit, require them to file for bankruptcy, and potentially leave them owning the remaining balance of the loan. However, these effects can vary depending upon the circumstance, state laws, and a lender’s willingness to work with the owner.

When You Should Consider a Short Sale?

With the risks and downsides just described regarding the short sale of your home, you may be wondering what could possibly be the use of a short sale. Short sales should be considered when faced with a potential foreclosure.

Foreclosures

A foreclosure occurs when the mortgagee fails to make payments to the lender. A legal process then begins to remove ownership of the home from the mortgagee to then sell the house typically at auction. In most cases, the mortgagee will not be responsible for any difference between the sale amount and the amount owed (barring deficiency judgments; more on that later). However, the impacts on the mortgagee’s credit score and future financial well-being are usually more severe than the impacts of a short sale.

How to Avoid a Deficiency Judgment

Deficiency judgments can occur in a short sale as well as in a foreclosure. A deficiency judgment is a court ruling that the mortgagee must pay the remaining balance owed to the lender.

Foreclosures are riskier for you

The advantage a short sale holds over foreclosure is the mortgagee can evade this ruling by approaching the lender before selling the home. This is done by convincing your lender to offer relief for the remaining balance of the loan in legal writing. If this is done, then a court cannot issue a deficiency judgment. However, with a foreclosure, you will be at the mercy of whichever judge oversees your foreclosure.

Lenders also face a greater risk with Foreclosures

Now, many assume that a mortgage lender would be unwilling to offer mortgagee relief from a deficiency judgment during a short sale, but this is surprisingly not the case. Lenders face a greater level of risk than the mortgagee when facing foreclosure. They often will receive less at auction than what they can receive through a short sale, and if a judge does not issue a deficiency judgment, they stand to lose more.

Extenuating Circumstances

Lenders are also more likely to offer relief if the mortgagee faces extenuating circumstances. If you have recently suffered from a death in your immediate family, divorce, or injury that has inhibited your ability to generate income, lenders are more likely to work with you. Some lenders may do this out of generosity, but the reality is that a judge will also be more likely not to issue a deficiency judgment under these circumstances. Either way, it is still better to resolve this before it reaches the court by using a short sale.

Other Options to Consider

Before rushing into a short sale, be sure to consider other options you have available such as:

• Loan modification – requires talking to your financial institution to adjust your monthly payment to something you can afford by extending the term length or reducing the interest
• Private mortgage insurance (PMI) – if you have paid back more than 78% of your mortgage, you can ask your financial institution to drop the PMI from your monthly payment, reducing your overall cost of the loan
• Refinancing – you can shop for a new lender that offers a lower rate and longer term than you currently have

How WCC Can Help

Short sales have become increasingly rare due to the recent skyrocketing cost of homes. You will likely not find yourself in a situation where you will need to navigate a short sale unless your home needs repairs and remodeling. If you find yourself in such a position, WCC Properties will give you a fair price for your home regardless of the damage!