Denver Homes Online

Short Sale Vs Foreclosure

How Is A Short Sale Different From Foreclosure?

Short Sales have taken center stage in the housing market in recent years, due to the recent and national decline in property values.

Foreclosure, is a legal process where the homeowner forfeits their ownership rights to the property.  A short sale is a voluntary process, occuring when the bank or mortgage lender agrees to help the homeowner sell the property, but for less than what is owed to that lender.  If you owe more than your home is worth, a short sale may help you avoid foreclosure.

Many mortgage lenders agree to participate in a short sale as an alternative to foreclosure, because they can avoid the expense of foreclosure.

A Short Sale Spares Greater Financial Hardship

With both a short sale or foreclosure, the homeowner ultimately loses their home or property.  In the case of a short sale, however, the financial hardship is far less severe.  A short sale will certainly have an unfavorable impact on one's credit score, but in the case of foreclosure, the impact is far more destructive.  Take a moment to review the chart, below, which compares the probably outcome on your credit score between these two alternatives. 

After a successful short sale, many homeowners are actually eligible to obtain a new mortgage loan for the purchase a replacement home.  In the case of a foreclosure though, that wait period is typically a minimum of 3 to 7 years.

A Typical Short-Sale Scenario

● Homeowner owes $200,000 on their mortgage, but the fair market value is less than that.
● Homeowner puts house on the market as a Short Sale.
● Buyer agrees to pay fair market value for home - $175,000.
● Mortgage lender agrees to accept the $175,000 as full payoff of the mortgage.
● Closing occurs.
● Homeowner owes no further mortgage debt and avoids foreclosure.

Common Reasons Why You'll Want To Short Sale

• The home was refinanced at 100% or greater, than its present fair market value.
• The home requires too many costly repairs to sell, and the market won't support a sufficient price.
• The home was financed with an interest-only loan, and homeowner is now unable to refinance.
• The home is located in a neighborhood or area with very distressed economic conditions.
• The home was purchased at the top of the real estate cycle, and a substantial drop in market value has occurred.

Why Did This Happen?

Many uncontrollable events lead to a short sale or foreclosure.  Unexpected illnesses, divorce, job relocation, active military duty, unemployment, local economic conditions, excessive debt, financial insolvency, a death in the family, or any combination of these events.  

Another common reason for homeowners to seek short sale assistance is directly related to the financial and credit market collapse of a few years back.  The resulting decline in property values during that economic collapse, resulted in many mortgage loans exceeding the current value of their homes.  In this scenario, it wasn't possible for the homeowner to sell and move, without brining a sack of money to the closing table.  Thus, many homeowners request short sale assistance from their mortgage lender if they can no longer stay in the home or make the payments. 

Plan Ahead And Discover Your Options

Homeowners facing these types of economic hardships may have a foreclosure looming, but are often too proud or uninformed to do anything about it, until its too late.  Before considering bankruptcy or allowing the bank to foreclose, consider a short sale.  Below, is a list of the many benefits for homeowners to agree to participate in a short sale, versus being foreclosed upon. 

Benefits Of A Short Sale Versus Foreclosure

• Sellers can apply for a short sale even if they're not behind in payments.
• Lender pays all the selling costs and real estate commision.
• Sellers receive professional guidance from real estate agent when doing a short sale.
• A short sale may postpone the foreclosure action to allow enough time for house to be sold.
• Seller may qualify for financial or relocation incentives from the lender.
• A short sale may be less damaging on your credit score.
• Homeowner may qualify for another mortgage loan much sooner, as compared to a foreclosure.
• Mortgage lender may agree to a release of liability for any deficiency judgment.**
• Possible tax relief from cancellation of any debt income.
• Short sales are not likely to affect jobs that require a security clearance.
• It is easier to recover financially and emotionally from a short sale, than a foreclosure.

How We Can Help

If you think you'd benefit from selling your house right now, but you're behind on your mortgage payments or have little or no equity, take the time to call for an appointment.  We look forward to working with you and your mortgage lender, to help prevent a foreclosure.  We'll communicate directly with your lender to determine if you qualify for a short sale.  If you do, we'll market your home for a realistic sales price in order to get the house sold prior to foreclosure.  We manage the entire process, so you can concentrate on other things and get your life and finances back on track.

If a foreclosure is already in process, we may be able to persuade your lender to grant an extension of the foreclosure sale date. 

Personal Appointments Every Week - And They're FREE

Our short sale appointments are the fastest way to help answer all of your questions, and help you understand all the best options.  Sometimes its difficult to seek professional advice, buy you'll be glad you did.  CALL NOW, our consultations are FREE - (303) 514-4000.

Short Sale And Foreclosure Disclosures:

• We never ask for any fees to be paid up-front, or in exchange for a counseling service.
• Your lender may not approve you or your property for a Short Sale.
• If any company tells you to stop paying your mortgage, they must also tell you that you could lose your home and damage your credit rating.
• If we are unable to assist you with the sale of your home or property, we do not earn a brokerage commission.
• Our real estate professionals are not associated with the government, and our information and services relating to short sales and foreclosures are not endorsed by either the government or your lender.
• You can also get relief and learn more from HUD in Colorado, or through the national HUD Hope Hotline.

**Congress enacted H.R. 3648, "Mortgage Forgiveness Debt Relief Act of 2007." This legislation discharged mortgage tax indebtedness after January 1, 2007.  Federal Bailout Legislation H.R. 1424, extends the relief through December 31, 2012.  Colorado state law also also restricts the lender from pursuing deficiencies in some circumstances.  Also see Definition of Short Sale.