Short Sale Vs. Foreclosure

Avoiding Foreclosure with a Short Sale

The difference between a short sale and foreclosure in South Florida is the process in which a lender (usually a mortgage company or bank) is paid to satisfy the loan.  A foreclosure is when a financial institution repossesses your home due to a failure to keep up with mortgage re-payments. If this were to happen you lose your property, all your rights to the property are terminated and you are evicted from the property, which is then sold onto someone else.

Many people often feel that they have no alternative to a foreclosure when they have missed mortgage payments when in some circumstances you may be in a position that means you don't have to suffer the effects of a foreclosure. One of the first aspects that you need to look at when you are facing the possibility of a foreclosure is to decide whether a short sale will actually help your financial problems. If your money problems are temporary such as you have lost your job but it's only a matter of time before you get one again then you should try everything to avoid a foreclosure; however your debt may be so large that a foreclosure is the only way out of it. Evaluate your situation and you may find you can get out of a foreclosure. If you are one of the many people who are worried about the prospect of foreclosure or maybe you are facing a foreclosure, you should consider the option of a short sale.

Short Sales Explained

A Short Sale in Florida is when a lender agrees to accept less than the amount owed on a mortgage note in order to avoid foreclosure action which is a very expensive process to pursue.  Therefore, mortgage lenders and banks are inclined to accept a short sale and even offer incentives for a homeowner who cooperates in selling their property as a short sale.  The process of a short sale is a unique arrangement where the financial institution that is involved and the home owner work together to sell the property before it becomes another foreclosed property.  One of the main reasons that a homeowner would need to sell their property "short" is that the market value has declined and they aren't able to continue making payments and it would be impossible to sell the property for the amount owed on the original  mortgage. 

In this case, a short sale is the best option if there is a TRUE hardship.  A hardship is anything that is or would prevent the homeowner from making mortgage payments such as a job loss, significant decline in income, divorce situation, illness or death.

Here's an example of a short sale situation

An example of a short sale situation would be if a homeowner is facing a foreclosure and they have an existing first mortgage of $500,000 but the property's current market value is only $400,000.  The homeowner would hire a certified short sale expert (Certified Distressed Property Expert) to list the home at the current market value of $400,000, and when an offer is received, present that offer to the bank with all required documentation which varies from lender to lender.  If the lender chooses to accept the offer, your real estate short sale team would negotiate the acceptance by the lender as payment in full for the original loan, thereby avoiding any further and future deficiency judgements against you for the balance of $100,000 owed (difference between the sale price and the original loan amount). 

Why would a lender accept less than what I owe?

Many homeowners wonder why a lender would be willing to accept less than what they are owed.  The answer is that the short sale process ends up saving the lender in the long run because the foreclosure process in Florida can take anywhere between nine months to over two years, and cost between $20,000 to $50,000 in legal fees and court costs.  In a short sale, they are able to save both time and money which is why certain lenders offer monetary incentives to homeowners.