A “Short Sale” is defined as the sale of a home/property that is being sold for less than the amount owed on a mortgage. This usually occurs when a homeowner gets behind on their mortgage payments. The homeowner is typically facing foreclosure when a short sale might be considered. However, the mortgage lender (mortgage holder/bank/mortgage company) must agree to the short sale before it can be accomplished. In other words, a homeowner cannot just decide to do a short sale of their property on their own. There must be agreement by the other party or parties who have an interest in having the mortgage loan paid back to them.
When a homeowner is faced with a delinquent mortgage and the home is ‘under water,” (meaning it is worth less than the amount owed to the lender), another alternative is to let the lender go through the process of foreclosure. Foreclosure takes time and it will not happen instantaneously due to laws, rules, and regulations that protect a homeowner. The main disadvantage of this is that the foreclosure will adversely affect a homeowner’s credit. It may become impossible for the homeowner to get a loan for another property, or even be eligible to rent a property. (Many rental applications not only ask if you have ever been evicted, but also ask if you have ever owned a property which has been lost through foreclosure.) When faced with this situation, a homeowner could be better off trying to accomplish a short sale of the home.
When a homeowner is faced with the possibility of foreclosure, the first step is to consult with the lender to see if the lender will agree to a short sale of the property. Remember, the lender will be receiving less money from the short sale than the lender is owed by the homeowner on the mortgage. That being said, foreclosure can be an expensive process for the lender. Foreclosure can take many months or even years, especially if the homeowner engages in litigation with the lender in an attempt to refinance their property or obtain a loan modification. For this reason, a lender may very well agree to a short sale and could consider the mortgage paid in full if the short sale occurs.
An advantage for the homeowner is that they might avoid completely ruining their credit, if they can accomplish a short sale after a lender agrees to it. A short sale benefits the homeowner because he or she will avoid the negative credit issues due to the foreclosure and the bankruptcy that can occur. It is also expensive for the homeowner, who is already facing financial problems, as well, to engage in an extended fight with a lender.
Why You Need An Attorney
Whether you, as a homeowner, who is facing foreclosure, decides to attempt a short sale of the property (or opts to proceed with the foreclosure procedure, or may have to do so if a mortgage lender decides not to agree to a short sale), a homeowner should consult with an attorney.
A short sale will involve an agreement/contract with a lender. It is best to have an attorney guide you through that process. All consequences of the agreement would be explained by an attorney. If a deficiency judgment is a possibility that must be understood by the homeowner as well. (A deficiency judgment means that the homeowner could be on the hook for the difference between the sale price of the home and the balance on the mortgage.)
There is no doubt that at some point, the lender will have legal representation. A homeowner would want an attorney for their legal representation, as the lender’s attorney cannot (and should not) give the homeowner advice. An attorney would be needed for purposes of negotiating any short sale agreement and possibly defending it in a court of law. In the case of foreclosure, an attorney negotiates with the bank to possibly obtain a loan modification and attempt to save the home in that way. If bankruptcy becomes necessary or is advisable, then an attorney is necessary to guide a homeowner through that process.
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