Life’s unpredictable twists can lead individuals to financial crossroads, where tough decisions about property ownership become inevitable. In some cases a home value may be lower than the existing loan balance on a house. When this is combined with financial hardship it can put home owners and lenders in a hard spot. As we explore the complexities of foreclosure and short sales, our aim is not only to provide insight into the technical aspects of these processes but also help you on your way to the next chapter of your life where you can start fresh. We recognize that circumstances can sometimes lead to difficult choices, and our goal is to shed light on the options available. We talk to people every week just like you that are in the midst of some of the same challenges. You’re not alone and there are people here that can help you along the way! J&A Home Buyers is an experienced cash buyer in Katy, TX and we buy houses all around the greater Houston, TX area.
Key Take Aways:
- Short Sale can be a huge help to your credit score and allow you to take other loans
- Both property owners and banks benefit from a short sale even if the bank takes a loss on the loan balance
- Starting the short sale process begins by knowing your houses values and what repairs need to be made to the house
How Is a Foreclosure Different Than A Short Sale?
Foreclosure and short sale are distinct processes that arise when homeowners face challenges in meeting mortgage payments. Foreclosure is a legal procedure initiated by the lender when the homeowner falls behind on payments, ultimately leading to the lender taking ownership of the property and selling it at a public auction. On the other hand, a short sale is a negotiated agreement between the homeowner and the lender to sell the property for less than the outstanding mortgage amount. In a short sale, the property is sold to a new buyer, and the lender accepts the proceeds as payment, even if it’s not the full debt. In both cases the homeowner will no longer own the property the difference is with a Short Sale the homeowner worked with the bank to avoid a legal foreclosure. Banks do not like foreclosing on properties because they are not set up to manage and maintain properties nor sell those properties. By helping a bank solve a problem that they share with the homeowner, the homeowner may receive favorable terms. Important to Note: You do not need to do a Short Sale if the value of your home is greater than the outstanding debt or liens on your property. In that case you can just make a direct sale and you would walk away with money in your pocket.
Is A Foreclosure Worse Than A Short Sale?
Foreclosure typically carries more severe consequences for homeowners. It involves the legal process initiated by lenders to take ownership of the property when mortgage payments are consistently missed. Foreclosure significantly damages the homeowner’s credit score, making it challenging to secure loans in the future. Additionally, the loss of the property through a public auction is a more abrupt and less controlled process. In contrast, a short sale, while still impacting credit, is generally considered less detrimental. It involves a negotiated agreement between the homeowner and the lender to sell the property for less than the owed amount, offering homeowners more control and potentially mitigating some of the credit repercussions associated with foreclosure. Why do sellers choose a short sale?Although both foreclosure and a Short Sale result in loss of a home, a Short Sale can at least set you up to get other loans in the future and is often seen as the least challenging of the two paths as the homeowner has more control.
Who Benefits From A Short Sale?
A short sale can offer benefits to various parties involved in the real estate transaction. For homeowners facing financial hardships, a short sale provides an opportunity to avoid the harsh credit impact and legal consequences associated with foreclosure. It allows them to sell the property for less than the owed amount, potentially preventing a more damaging financial outcome. Lenders also stand to benefit from short sales, as they avoid the lengthy and costly foreclosure process. By accepting a reduced payoff, lenders can minimize losses and expedite the resolution of problematic loans. Buyers, on the other hand, may benefit from a short sale by acquiring a property at a potentially lower price compared to the market value. Real estate agents specializing in short sales can also benefit by facilitating these transactions and earning commissions. Overall, a short sale creates a scenario where multiple parties have the potential to find a more favorable resolution compared to other alternatives like foreclosure.
How Long Does A Short Sale or A Foreclosure Stay On Your Credit?
Both a short sale and a foreclosure will stay on your credit for seven years. The difference is the impact and how quickly you might be able to take out other loans. With a short sale you are likely to see the impact to your credit score diminish after a couple of years, especially if you maintain positive credit behavior in other areas. Fannie Mae and Freddie Mac, who currently purchase most single family mortgages, have issued recent statements that suggesting that individuals who undergo a short sale might be eligible for new loans backed by either agency within two years, rather than the standard seven years seen by a foreclosure. The key difference is in a short sale it shows proactive attempts to avoid a default on debt and impact to lenders. This is seen favorably for future considerations of other lenders.
How Do I Start a Short Sale?
The short sale process can be a little bit tricky. The first step is understanding what the fair market value of your property is today in as-is condition. To do this find a local realtor near you to give you a Comparable Market Analysis. J&A Home Buyers is unique because we buy houses that need repairs but we also have licensed realtors on our team who can show you what other people have paid for similar properties in your area. This information is not public in Texas. We can work with you through the short sale process and purchase your property with a full report of necessary repairs needed along with a free market report that you can take to your lender.
You will need to start the conversation with your bank and explain your situation that you are facing and why you are unable to continue making payments on the property. You will need things like bank statements, pay stubs, other debts handy to submit after your call. Secondly, having good data on what your house is worth and what work needs to be done to the house will show them that you are prepared and you know what you are doing. It will also help them in their decision on whether they would like to allow a short sale or if they will not accept the request for a short sale. From a bank’s perspective they don’t want to have a house foreclose because they usually end up having bad debt on their books for a long period of time and take sever losses. They also want to avoid taking too big of a hit on the debt if the house value is upside down from the current loan value. This can cause the conversation on an acceptable price for a short sale to take quite a bit of time. There may be several back and forth conversations and documents sent by the buyer, realtor, owner and lender until they can all reach an agreement. In Texas this process typically takes at least 60-120 days. Many retail buyers will back out during these back and forth conversations as they are needing a house now. We are different in that we are well qualified cash buyers and are in the business of buying houses.
Take Your First Step To The Next Chapter!
In summary a short sale is up to the lender if they will permit the short sale or not. It is well worth the effort and in the long run it will help you restore your credit much quicker. We are here to help you through the process. Call us or fill out the form on this page to take your first step and find out what your house is worth in today’s market.