Losing your home due to the inability to meet the monthly payment obligations is perhaps the worst financial situation you could ever find yourself facing. In fact, a foreclosure puts a huge blemish on your credit report, where improving it could take years. Moreover, a mortgage lender may file a legal case against you as part of the foreclosure action. All this would then hinder your ability to obtain any kind of credit, leaving you completely helpless.
Consider a Short Sale as a Better Credit Position
The pitfalls of a foreclosure are frightening and sometimes irreparable. Hence, any option that promises a way out of the situation is a better alternative. This process is one option for homeowners who are mired in financial woes. Simply put, a short sale involves selling your home at a price that is lower than the amount you owe the mortgage lender.
The best part about short sales is that they create a win-win-win situation for all parties involved in the transactions:
•The seller is able to evade foreclosure and payoff their mortgage liability.
•The lender is able to recover his dues without going through a lengthy legal procedure, and fees, of foreclosure and marketing the repossessed property.
•The buyer is able to purchase the home at a reduced price.
Considering a Short Sale? Keep the Following Factors in Mind
The first safeguard measure you must take when settling your mortgage through this process is to get a written acknowledgment from the lender, stating that all your debts are absolved. Other considerations to bear in mind to avoid any potential negative consequences of the process are:
•Protect your credit rating: Do not forget that a short sale is mentioned on your credit report. Therefore, get the lender to report it favorably. For instance, if your report merely states that the debt is satisfied, your score will not be impacted. On the other hand, if your lender reports ’settled for less than the full balance,’ your score will drop automatically.
•Get tax advice: A tax liability on a short sale arises when the lender claims that the debt forgiven should be treated as an income. A tax professional can help you find alternatives to limit this liability.
While a short sale is certainly a superior alternative to foreclosure on several grounds, a homeowner often struggles to convince the lender to agree to them right away. This is because the lender has to agree to forgo a part of the mortgage claim that they want to recover. Therefore, when faced with a financial crunch, a short sale must be pursued as soon as possible. The longer you wait, the greater the amount of arrears, and the less likely that the lender will be to agree to the process. With that said, I have seen people live in their homes for many months without paying their mortgage and still complete a success transaction. Of course this is a bit risky and I would never recommend this strategy to anyone.
If you, or someone you know is facing a foreclosure scenario you will want to have a seasoned professional assist you in examining your options. Having an expert work with you could protect you, your home, and your financial future.
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