Whether you’re a buyer or a borrower/seller, a short sale, and foreclosure each present different advantages and difficulties.
What Is A Foreclosure In Metro Detroit, MI?
When a homeowner can’t keep up with their mortgage payments, the bank has the right to take back the home. This process is called foreclosure. The bank does this to try to get back the money they lent for the home.
Typically, when a borrower misses multiple mortgage payments, the bank or lender takes over ownership of the property and evicts the homeowner. The bank then tries to sell the home, either through an auction or by listing it with a real estate agent.
Foreclosure can have serious consequences for the homeowner, including a significant drop in their credit score, which can make it hard to get another mortgage for many years.
The foreclosure process can vary depending on where you live, so it’s important to understand how it works in your state. You can find more details about this process on the HUD Government website.
What Is A Short Sale?
In a short sale, the homeowner still owns the property, but they owe more on the mortgage than what they can sell the home for. Essentially, they’re “short” on the amount needed to pay off the mortgage, so they ask the lender to accept less than what’s owed.
For example, if a homeowner has a mortgage balance of $200,000 but can only sell their home for $180,000, they might ask the bank to accept the $180,000 and forgive the remaining $20,000. The bank would then release its claim on the property, even though they’re not getting the full amount they’re owed.
Short sales can be a complex process because they require the approval of all the lenders who have a claim on the property. If the mortgage has been sold to different lenders or there are additional liens (like unpaid taxes or second mortgages), everyone involved must agree to the short sale terms.
Here’s another example: Imagine a homeowner who lost their job and can no longer afford their monthly mortgage payments. They owe $150,000 on their mortgage, but the home’s market value has dropped, and they can only find a buyer willing to pay $130,000. If the bank agrees to the short sale, they accept the $130,000 and forgive the remaining $20,000, allowing the homeowner to sell the property and avoid foreclosure.
Short sales can be an alternative to foreclosure, offering the homeowner a way to sell their home and minimize damage to their credit score. However, the process can take time, and there’s no guarantee all parties will agree, which can lead to the sale falling through.
Short Sale vs Foreclosure – Your Options
While both options can have ramifications, a short sale often has less of an impact on the borrower’s creditworthiness. A foreclosure could impact a borrower’s credit score by 300 or more points, where a short sale may only dent the credit score by 100 points.
Borrowers who are foreclosed on are often ineligible to purchase another home for 5-7 years with a traditional mortgage, where under certain circumstances, a short sale borrower can purchase immediately.
As many Americans struggle with an economy that has yet to completely recover from the 2008 crash, folks are having a hard time making monthly mortgage payments. Choosing between being foreclosed and initiating a short sale (or a 3rd option… selling your Metro Detroit house fast )is an easy choice for a borrower having troubles paying their mortgage on time.
Sometimes, lenders are willing to work with borrowers to complete a short sale, to avoid the fees and time-consuming process of conducting a foreclosure.
Our suggestion is always this.
- Talk with your lender and discuss ways that they can work with you on your loan. We offer this service where we can help guide you in the right direction if you run into issues with your lender… just reach out to us on our Contact page and we’ll discuss your situation.
- Attempt a short sale or other programs your lender may have that forgives part of your loan, creates a new / more affordable monthly payment so you can get back on your feet, etc.
- If the bank isn’t willing to work with you very much… your best option may be to sell your house. Work with a local real estate house buyer service like 3D Property Solutions to sell your house fast for an all-cash offer. If you’re interested we can look at your situation and make you a fair offer on your house within 24 hours. Just fill out the form on our website over here >>
- Foreclosure. Last resort is to let the house fall into foreclosure. This is the worst possible scenario. It’ll harm your credit and you could still be left with money owed to the bank even after the foreclosure is finished.
By knowing your options, you may be able to dodge a significant impact on your credit score, allowing you to purchase a new home when your situation improves. A foreclosure on your credit report makes that possibility extremely difficult for 5-7 years, so if you have the opportunity, a short sale can be the better option.
Have a pending foreclosure? We’d like to make you a fair all-cash offer on your house.