How to Use a Short Sale to Avoid Foreclosure

September 14th, 2007 • Related • Filed Under • by admin

There are many real estate markets in the country where home values are just fine and actually increasing, but in some markets, prices are dropping quite quickly. In many of the speculative markets around the country, investors bought homes with no money down, had adjustable loans, or even had an option payment loan where the mortgage balance actually rose over time! They only way to get out ahead in an option payment loan is if the value of the home increases dramatically over-time, and since prices are going down, a lot of people who got into them are now facing foreclosure. If you can’t make your mortgage payment for whatever reason and are facing foreclosure, there may be a way that you can sell your home, avoid a foreclosure, and not owe any money after the fact. It’s called a short sale, and it may be able to prevent a foreclosure on your home.

A short sale is when an owner owes more on his or her home than it’s worth and is unable continue making a mortgage payment. If the owner could find a buyer that is interested in purchasing the home, the lender may agree to accept less than the loan balance as a settlement-in-full for the mortgage. It seems to defy logic that a mortgage company would accept less money than is owed on the home, but it turns out that it costs the lender an average of $70,000 for each home they have to foreclose on. This makes a short-sale a good situation for both the mortgage company and the homeowner. It’s actually beneficial to the whole neighborhood, since the average selling price of a home drops 1.5% after a home in the same neighborhood is foreclosed upon.

If you’re at the point where your home is just becoming too expensive for you to keep, you should start talking to a real estate seller and start actively marketing your home. This way you’ll be able to sell your home, and avoid having go through a short-sale or a foreclosure.

If you’re at the point where you’re thinking a short-sale might start to make sense, contact your mortgage company, tell them what’s going on and see if that’s something they might be willing to do. Even if they say no today, they might be able to say yes tomorrow. Sometimes they’ll want you to have a buyer in line, and other times as market conditions change, they’ll become more willing to accept a short sale.