Short Sale as an Alternative to Foreclosure
The benefits of a short sale and where to get help
What is a Short Sale?
A short sale, sometimes known as a pre-foreclosure sale, is the process in which
a homeowner sells their house for less than the amount owed on their mortgage(s).
This must be negotiated with the bank in advance, as the short sale price is less
than the amount owed on the mortgage.
Short Sale vs. Foreclosure - how does it help me?
If you are facing foreclosure and are seriously delinquent on your mortgage payments,
some lenders will agree to accept the proceeds of a short sale and forgive the rest
of what you owe them on the mortgage. By accepting a short sale, the lender can
avoid a lengthy, and costly, foreclosure while you are able to pay off the loan
for less than what you owe.
Effects of a short sale on your credit
Lenders report to credit bureaus differently, with some not reporting a short sale
at all. However, with a foreclosure a FICO score can drop considerably: about 200-400
points.
Buying again after a short sale
Depending on if you were late on payments before your short sale, you may buy another
home immediately. In other cases you may have to wait 2-3 years for FHA or Fannie-Mae
backed loans.
In the case of a foreclosure, it takes 5-7 years to become eligible to buy another
home.
Banks generally lose a substantial amount of money through foreclosing and auctioning
off a house. With a short sale the lender may save some money while recovering some
of their loss. It could be a win - win situation for both you and the bank.
Important Short Sale Information
- In many cases both the lender and borrower receive financial incentives to perform
a short sale.
- Be sure and check with a certified professional tax adviser about the tax implications
on a short sale.
- Sometimes lenders will require you to attempt a short sale before they will consider
other foreclosure alternatives such as a loan modification or a deed in lieu of
foreclosure.
HAFA Short Sale Program
The Home Affordable Foreclosure Alternatives (HAFA) program is for homeowners who
are eligible for the government Home Affordable Modification Program (HAMP), but are
not able to secure a permanent loan modification or cannot avoid foreclosure. HAFA
provides protection and money to eligible homeowners who decide to do a Short Sale.
Learn more about the HAFA program and how to apply »
Short Sale Help
If you are considering doing a short sale on your home then it will help to get
some free advice before contacting your lender.
Talk to a HUD-approved, nonprofit housing consultant and find out the details
of how a short sale may benefit you based on your individual mortgage and financial
situation.