Foreclosures and Short Sales: Takeaways of Both
A number of things can happen when a homeowner gets behind on payments. The two of the more frequent outcomes are foreclosure and short sale. Want to know the difference?
Foreclosure
Foreclosures can be extremely complicated, but here are the facts. Home foreclosures happen when a borrower fails to make his or her payments and defaults on the loans. The lender then takes possession of the property and sells it. To be clear, banks do not want foreclosures. If a home enters foreclosure, then the bank must spend more money to prepare the house for sale, and the selling price rarely covers the outstanding balance on the loan. Both parties can also incur attorney and other fees throughout the process.
- Foreclosure is a lengthy process
- Foreclosure is a very public process
- The homeowner has no say in the sale
- The homeowner may be responsible for taxes on the cancelled debts
Short Sale
A short sale is the sale of real estate in which the net proceeds of the sale won’t cover the debts on the property and all lien holders agree to accept less than the amount owed. While it sounds a bit far-fetched, 5.1% of properties are sold as a short sale. Short sales occur when homeowners cannot pay off their loans but also cannot sell the house for enough to cover the debt. Basically, the housing markets causes the loan to be worth more than the house itself. The owners can then cut a deal with the bank to sell the house for less than the loan amount. There will be many hoops to jump through, but it’s possible to get banks to agree to this. They just want to take the smallest possible loss on the loan.
- Less damage to credit than foreclosure
- Sell your own home
- Ability to stay in the home until sale is complete
- Bank handles Realtor fees
- Extends time of closure from 30 days to 90-120 days
- 1099-C for debt cancellation
- Treats cancelled debt amount as earned income
If you want to avoid both of these options, you can always sell your house for cash. Selling to a cash buyers can help you avoid the paperwork of a short sale and the difficulties of a foreclosure. Local Cash Buyers will also take over payments on a mortgage to help you avoid both a foreclosure and a short sale.
Want to avoid foreclosure or short sales all together? Give us a call at 469-701-1666 or fill out an online form to get started!