I cannot stress this enough. A short sale vs. a foreclosure may be the best solution for you if you owe more on your home than it’s worth. Before you make any decision regarding this process, seek objective help and by all means understand and know what your options are and the consequences of your decision.
What Are Your Options?
- Refinance or Modify your Current Loan
- Bring Cash to Closing to Make Up the Difference
- Conduct a Short Sale on Your Home
- Offer a Deed in Lieu of Foreclosure
- Go Through the Foreclosure Process
- Walk Out and Do Nothing Hoping for the Best (no closure and I suggest against this option)
First things first, Communicate
Communicate with your lender(s), I guarantee you that the problem will not go away. Call the lender and ask them to help you with a solution. Dealing with your lender can be frustrating. I suggest you make notes during every call, noting who you spoke with, what was said and the resolution offered. You have to be persistent, believe me, they will not. Seek legal advice. Determine the value of your house. Some people don’t really know if their proceeds are going to be too low to pay off the mortgage(s), so find out. Have a licensed real estate agent prepare a market review to discuss values.
- Refinance or Loan Modification – Refinance may include a Loan Modification Program. The lender will request several items from you. They will want to see income, expenses and tax returns to determine if you qualify for a modification program. Copy the documents you send them, keep them in a file, most likely you will need them again.
- Bringing Cash to Closing – may not be an option unless you have plenty of cash. I did a potential short sale for a friend and he decided that it was in his best interest to bring $40,000.00 to the settlement. If cannot do this then scratch this option off the list.
- Offer the Lender a Deed in Lieu of Foreclosure – may be a good option if the bank will accept it. This is the process of signing a deed over to the bank in exchange for avoiding the foreclosure process entirely. You may be able to negotiate some of the terms. The way the deed is recorded by the bank could have impact on your credit. Seek legal advice on this one.
- Short Sale Process- Although processes in most major lending institutions are similar, you need to find out what the process is for your particular lender. Some require that you have the home on the market for 60 days prior to them considering a contract for a short sale. This fact can affect your timeline for selling your home short. These things do not happen overnight so open a dialogue with your lender NOW. Involve a real estate agent and or an attorney early on in the process. There are title companies today that will negotiate with the lender on your behalf. I can obtain permission from you to discuss your case with the lender as well.
- Going Through the Foreclosure Process and Walking Out – are similar processes. I guess the difference is, if you walk out, you won’t get mail from the lender. You won’t get the phone calls on your home phone, and you won’t have pre-foreclosure investors knocking on your door trying to make some weird deal. But…the lender can come seek you out for the loss they incur at some point in the future. Waling out doesn’t offer any real closure for you, the seller.
There options when you are in this type of situation. The main point I want to stress to you is, Don’t Panic. You have time to deal with this, no one is going to drive up to your home and take it away today. In Maryland the Foreclosure process is very very long. Maryland ranks 5th in the nation regarding timelines to foreclose on you.
Knowledge and information are critical, patience is essential. Involve dedicated people that can help you through the short sale process. Please feel free to Contact me with any questions or concerns.
IRS regarding how the short proceeds are treated