If you’re experiencing financial distress and there is a risk that your bank will foreclose on your home, you should consider exploring your options with an experienced short sale lawyer. Depending on your financial circumstances, a short sale may be a good alternative to foreclosure. However, a short sale is not a perfect solution – the process is administratively intensive, and several pitfalls that need to be avoided.
With a reliable short sale lawyer by your side, you’ll be well-positioned to navigate the process successfully so that your financial situation improves in the long run.
What Is A Short Sale?
In essence, a short sale is a real estate transaction in which a property is sold for a lower amount than the amount that is owing on the property to any lender or lenders.
For example, if a home is sold for $200,000, but there is still $250,000 remaining on the mortgage, then the sale falls ‘short’ of the loan repayment amount and is a short sale. The outstanding balance (in this example, $50,000) that the seller owes to their lending institution is often referred to as the ‘deficiency balance’. The lending institution may choose to forgive this outstanding debt, or the seller may be required to settle the debt over time. Often, short sale lawyers are able to negotiate a reasonable compromise that suits both their clients and the lender.
Short sales were very common during the 2007-2009 housing market crisis. They are usually used by sellers who are in financial distress and want to avoid foreclosure, or by sellers who need to achieve liquidity quickly during a dip in the housing market but don’t have time to wait for housing prices to bounce back.
It’s important to note that a short sale always requires the lender’s approval, and homeowners who want to use this process must demonstrate their financial distress to their lender to obtain consent to proceed with the sale.
How Is A Short Sale Different From Foreclosure?
Short sales and home foreclosures are similar in that they are used when a homeowner is in financial distress and is unable to make their monthly mortgage payments, but they differ in several respects.
In the case of foreclosure, the bank (or other lending institution) places the property on auction, and it decides on the purchase price that it will accept. This means the seller has no control over how much their home is sold for, and cannot refuse an offer if they think it is too low. As a result, they may be left owing the bank a considerable sum after foreclosure.
In the case of a short sale, the seller retains control over the sale process, and decides on the offer they are willing to accept. However, this also makes the process more administratively intensive for the seller, which is why sellers should hire a reputable short sale lawyer. Because short sales still involve the usual steps in a real estate transaction – finding a purchaser, negotiating offers and contracts, conducting due diligence, and processing the title transfer – it generally takes much longer than a foreclosure.
What Are The Benefits Of A Short Shale?
There is another major difference between home foreclosure and short sales, and this difference is also what makes a short sale far more advantageous for sellers: a foreclosure has a far more severe impact on a homeowner’s credit score than a short sale. For this reason, it is critical that you contact a short sale lawyer immediately if you have received a notice of default (also called a ‘breach letter’) from your lender, as it is almost always preferable to avoid the long-term consequences of foreclosure.
In many cases, homeowners who have had their homes foreclosed on must wait up to seven years to purchase another home. In contrast, those who have sold their homes through short sales are usually able to purchase a new home soon after the short sale (in some cases, immediately).
The other major benefit of a short sale is the fact that the seller remains in control of the sale process. This gives them the opportunity to obtain the best possible purchase price for their home, minimizing the deficiency balance that is left for them to pay. Sellers also end up paying fewer fees during a short sale than they would with a typical real estate transaction, as it is the owner of the property who is responsible for fees incurred as a result of the sale: in the case of a short sale, the property is still owned by the lending institution at the time of the sale, so the lender becomes responsible for the fees.
What Is The Short Sale Process And What Role Does A Short Sale Lawyer Play In Each Stage?
Short sales are complex, lengthy, and involve much more paperwork than most homeowners realize. Gaining a basic understanding of the process will make clear why it’s so important to hire an experienced short sale lawyer to guide you throughout the process.
Setting a price and finding a buyer
The first step in the short sale process is setting a purchase price. Ideally, you should aim to sell your home for as close to the value of your mortgage as you can. When setting a purchase price, you’ll need to factor in the cost of the various fees and expenses you’ll incur throughout the transaction. At this stage, it is also advisable you consult with a reputable short sale lawyer to discuss your predicament and obtain an assessment of whether a short sale is a suitable option for you. In some cases, your attorney may suggest an alternative legal strategy that allows you to keep your home, such as loan modification, loan reinstatement or deed-in-lieu of foreclosure.
Next, you’ll need to find a buyer. In this respect, short sales do not differ much from other home sales – however, when you market your home, you will need to make clear to the buyer that it is being sold by way of a short sale. This may be a deterrent for some buyers, who are not willing to wait for the lender’s approval, but it may be seen as an advantage by others.
Gathering documentation to demonstrate your financial distress
Once you’ve found a buyer, you’ll need to start gathering documentation that demonstrates your financial distress, such as bank statements, pay stubs, bills, proof of any extraordinary expenses you have recently incurred (such as medical expenses), or a termination letter from your employer. This part of the process can be tricky to get right: you want to demonstrate financial distress to your lender, but you don’t want the information you provide to be used against you at a later stage if the sale falls through and the bank forecloses on your home.
A qualified short sale lawyer will help you to gather relevant documentation necessary to gain lender approval without jeopardizing your long-term interests. Your lawyer will also negotiate with your lender on your behalf, and will attempt to persuade them to forgive the deficiency balance or not to report your missed payments to credit bureaus.
Closing
It may take several months for your lender to approve the short sale, but once it has been approved, the transaction can proceed to the closing stage. Usually, sellers appoint a real estate attorney to act as their closing agent: closing attorneys draft and review the final transaction documents, arrange title insurance, hold escrow funds, take care of the title transfer process, and release the proceeds of the sale once it is complete.
Deficiency judgment
In some cases, lenders refuse to forgive the deficiency balance and may choose to initiate legal proceedings to collect the outstanding amount from the seller. If your lender attempts to obtain a deficiency judgment against you, it is crucial you hire a short sale attorney to defend the proceedings. They may be able to negotiate a settlement with your bank, which will save you money and allow you to protect your credit score from the further damage that would be caused by a judgment being entered against you.
A Respected Coral Springs Short Sale Lawyer, Here To Help
Hiring an experienced, reputable short sale attorney is key if you want to be sure to avoid the disadvantages that short sales present while reaping the advantages they offer. At the Law Offices of Gary I. Handin, P.A., we understand just how distressing and overwhelming it can be to find yourself struggling to pay your mortgage and facing possible foreclosure proceedings. We have assisted countless Coral Springs homeowners in concluding a short sale that is in the long-term best interests of their family – and their credit score.
Contact our offices today at 1-877-815-4560 to find out more about the advantages of the short sale process or arrange a consultation with our esteemed short sale lawyers.
