If you’re struggling to pay your mortgage, you have a few options. You can sell your house through a short sale or go through the foreclosure process. How do these options differ, and which is better? It’s better to sell your home through a short sale if you can’t make the mortgage payments.
We’ll discuss this topic in detail, including:
- How the short sale and foreclosure processes differ
- Pros and cons of a short sale
- Norfolk short sale laws
- Dealing with estate and closing agents
- How short sales work
- If you still owe the bank after the sale.
Difference between Short Sale and Foreclosure
Short sales are voluntary and require mortgage lender approval. A foreclosure isn’t voluntary – the lender takes legal action to control and sell the home. Anything not covered by a short sale is the borrower’s responsibility. You can get another home with short sales, while foreclosures affect your credit score.
Short Sales vs. Foreclosures in Norfolk
There’s a difference between selling a house in a short sale versus selling it in foreclosure.
What Is a Short Sale?
A short sale is a voluntary home sale where you have to accept the price the buyer offers. They’re also called pre-foreclosure sales. If you’re trying to keep your credit intact and still pay off as much of your mortgage loan as possible, short sales are a better option because you can buy another house right away.
They can help when you’re behind on your mortgage payments if your loan is at risk or both.
What Is a Foreclosure?
A foreclosure is when the borrower defaults on the loan for several months, and the lender takes back the property. It’s the lender’s last option. Unlike short sales, lenders are the only ones who initiate foreclosures.
The lender tries to force the borrower to sell the home so that it can recuperate the amount of the mortgage investment. Also, many foreclosures occur after the homeowner leaves the property, where the homeowner is usually still living in the home during a short sale.
When they get in the home, they have it appraised and try to sell it. Foreclosures take less time to complete than short sales since the bank wants to get cash out of the home right away.
A homeowner who sold their home through a short sale may be able to buy another right away.
Homeowners who go through foreclosure might have to wait between two and seven years before buying another home. A foreclosure affects a person’s credit for seven years.
You can start over after a foreclosure, even with significant financial consequences like going bankrupt and damaging your credit, but finishing a short sale takes a lot of work. However, the end result may be worth it.
Short Sale Substitutes
Short sale substitutes could be a revised payment plan or loan modification.
If you have private mortgage insurance, there’s another possibility for saving your home.
If you purchased your home with less than 20 percent down and had to buy private mortgage insurance and the private mortgage insurance company believes you can recover financially, they can advance funds so your lender can catch up on your payments. You will have to repay the advance eventually.
Pros and Cons of a Short Sale in Norfolk
There are several advantages and disadvantages to a short sale in Norfolk.
Short Sale Pros
You’re more willing to work with the buyer. – When you’re looking at a short sale as the last chance to Stop house foreclosure, you’ll be more motivated to work with the buyer.
Buyers can save money. – A house may be available for less than market value, which is excellent for buyers who want to buy a house at a lower price and build equity quickly.
Your budget goes further. – If you find a better deal, you can make a bigger home purchase. You could then purchase a home in a neighborhood you otherwise wouldn’t be able to afford.
There’s a lot of potentials to build equity. – By definition, when the seller short sells the home, the house is worth less than their mortgage balance. For that reason, the home won’t undergo renovations or updates.
That can give you a price advantage over comparable properties whose sellers have the resources to market their homes and maximize profits.
The buyer could also build equity before closing. If the offer is accepted today and the housing market is still rising, they have between six and nine months before everything is finalized. Therefore, the buyer could gain equity even during that period.
Short sales look better than foreclosures. – Short sales are usually in better shape than foreclosures because the property remains occupied. Although the owners may not have been able to repair everything, the house hasn’t been vacant, so it hasn’t been vandalized, flooded, or squatted.
You can inspect a short sale. – Unlike a foreclosure purchased at auction, you can inspect a short sale property. If you’re buying a distressed property, a short sale is one of the safer options since the buyer knows more about the home’s condition.
Competition is lower. – Short-sale homes usually have less competition. There’s less risk of other buyers coming in and interfering with the sale, which can cause stress.
Short Sale Cons
You won’t save a lot. – You can save some money with a short sale, but you won’t save a lot. Before accepting your offer, the lender conducting the sale will thoroughly appraise your home’s actual fair market value. You’re more likely to get a discount if the short sale home isn’t updated or doesn’t compare well with neighbors.
They can go on for quite some time. – Since the lender has to approve the offer after the seller does, the short sale process takes longer than a regular sale. Waiting for the bank’s response could take several months.
It won’t be a quick sale, so a buyer who needs to move in soon shouldn’t consider it. The short sale is referred to as a short sale because the sale price falls short of the debt owed on the house.
Short sale houses are sold as they are. – These properties stay as they are. Future buyers should get a home inspection and include a contingency that says they can back out if the condition is problematic. However, you can’t negotiate repairs – you have to take it or leave it.
There’s little room for negotiation. – You don’t have as much leeway to negotiate the price and ask the seller to pay closing costs on a short sale. A bank knows how much money it will lose on a deal, limiting your flexibility.
Not all agents make short sales. – Short sales are specialized listings, so not every agent can handle them with the skill, proficiency, negotiation ability, and tenacity they demand.
It can be challenging to locate listings. – They aren’t always easily accessible. A specific circumstance leads to this type of sale, which does not occur everywhere, or at least not often. It’s harder to find them in a strong market, whereas you could find them everywhere in the Great Recession.
Short sales don’t always satisfy the rest of the mortgage after the sale of the property.
All mortgages have two parts – the lien on the property and the promise to repay. The lien provides security for the lender if a borrower can’t pay the loan back. It lets them sell the house to satisfy the mortgage. Short sales waive the lien.
However, lenders can still compel the buyer to repay with a new mortgage or collect the deficiency balance.
Short Sale Laws in Norfolk
Norfolk has several laws that you as a seller need to follow when short-selling your home.
You need to demonstrate circumstances that make it challenging to repay your mortgage and require you to sell your house. A hardship letter that explains why you can’t make your mortgage payments may be required.
You need to make sure you are selling your property to a third party that isn’t family. You can’t sell it to your family, friends, or co-workers.
You’ll also need to sell it for a fair price. You’ll need the lender’s consent to sell your house for less than what it is worth. Be sure you know all the rules about short sales for Cash home buyers in Virginia Beach.
Short Sale Details
You need to be aware of several details about a short sale before beginning the process.
Persuading the Lender
Before starting the short sale process, you need to consider your lender’s perspective when determining if they’ll work with you on a short sale. Since the lender doesn’t have to make a short sale, they decide whether they’ll allow it.
The cause of financial hardship must be something new, like illness, job loss, or divorce, instead of something that wasn’t mentioned when the borrower initially contacted the lender.
To position yourself better to finish a short sale, don’t make non-essential purchases. You don’t want the lender to think you’re irresponsible when they review your proposal.
Know the reasons why the lender may not approve your short sale. If you’re not in default on your mortgage, they probably won’t help you. They probably won’t allow it if they think they can make a better profit from a home foreclosure than a short sale. If the mortgage has a cosigner, the lender might make them pay rather than approve a short sale.
If you believe you’re an ideal candidate for a short sale, speak to a decisionmaker about possibly doing one. Ask to talk to someone in the lender’s loss mitigation department immediately rather than speaking to a customer service representative.
If you don’t like the first person’s answer, try for a different answer on another day from someone else. If they consider a short sale, you can start creating the proposal and looking for a buyer.
Talk to Experts
Now you need to speak to a lawyer, a tax pro, and a realtor who deals with short sales. These professionals cost a lot of money, but you could have more financial problems if you try to go through the short sale process yourself. They might let you pay them from the amount you make on your home sale.
Professionals who know how to deal with the short sale process can guide you in paying them.
Deciding on a Price
When deciding what price to ask for, consider how much it costs to sell the house into the amount you want to recuperate. Try to get as much as you can for the house, but know that you’ll probably fall short in a declining market. The bank may require you to repay the shortfall after a short sale in some states.
Get Your Documents Together and Look for a Buyer
Get all the information you’ll need to show your financial difficulty to the lender. The documents include:
- bank statements
- medical bills
- paycheck stubs
- a notice of termination from your previous employer
- a divorce order
It’s your job to suggest a proposal. After receiving all the information, the lender ultimately approves a short sale because they receive the proceeds. You’re in charge of finding someone to buy your home.
Give the Bank Your Proposal
Once you’ve found a valid buyer and have all the paperwork you need, you can show the bank the buyer’s offer and your proposal. You should have a hardship letter with your proposal that explains why you can’t make mortgage payments and the documentation of your distressed financial status. Keep your interests in mind while also convincing the bank.
Be careful when giving your financial information to the lender. If it denies the short sale, it may use the information to foreclose on you.
If you still have cash, you may need to use it to keep making mortgage payments or satisfy some of the shortfalls between the sale price and the amount of the mortgage. A lawyer who knows how to complete short sales can help you figure out the details.
Since short sales take more time because they need the lender’s approval, they sometimes fail. The buyer could find another house while they wait for your answer. Be ready for that possibility. If the short-sale transaction goes through, talk to the IRS to find out about your tax obligations on the shortfall.
Also, remember that short sales can still impact your credit score because the months of missed mortgage payments before the short sale can appear as late payments on your credit report.
It’s up to the bank what they want to report, so it’s in your best interest to convince them not to report the payments you defaulted on.
They might be generous if you mentioned your hardship before you got very behind. While this damages your credit somewhat, it does less damage than a foreclosure.
Short Sale Tips for Buyers and Investors
Short sales can be great opportunities for potential homebuyers and real estate investors to find real estate for cheap. However, you do need to know a few strategies.
Learn Where to Find Them
Most realtors list short-sale properties on their real estate company’s website. They may not be advertised as short sales; that means you’ll have to look for clues in the listing, such as needing approval from the bank or giving them time to respond.
Check the Public Records
Research the house before you make an offer. Your agent can find out who has the title, whether there’s been a foreclosure notice filed, and how much the buyer owes to the lender or lenders. All these things matter because they’ll help you determine your asking price.
If the house has two loans, you could have a problem. The second lender protects the first mortgage lender’s position unless the second lender doesn’t want to foreclose. If you offer $160,000 to the seller with $160,000 on the first mortgage and $40,000 on the second, the second mortgage gets nothing. The first will have to give something to get the second to cooperate, but it’s not nearly as much as you might think. Usually, $3000 to $6000 is sufficient.
Send Documentation And Purchase Offer to The Lender
The listing agent will submit your offer to the lender for approval once the seller has accepted it. A deal cannot be closed until the lender has approved it. You need to provide the lender with a copy of the earnest money deposit and proof of funds.
You’ll also need to show them that you’ve been pre-approved for your loan, so be sure to send the lender a recent preapproval letter. It helps if your agent sends a list of comparable sales that support the price you’re offering to pay for the home.
Give the Lender Time to Respond
Give the lender a deadline to respond and make your offer contingent on them accepting it. Then you can terminate the agreement. Some lenders ask for a committee’s approval on short sales, but most decide within two weeks to three months.
As a buyer, neither you nor your agent can contact your lender. The listing agent should have all the necessary information for the lender, so be patient.
Understand Short Sale Commissions
Although the seller doesn’t keep any of the money, he has to pay the commission on the sale proceeds. No matter what commission the seller agrees to pay, the lender approves it. Your lender will likely negotiate the commission directly with the listing broker, who will then share it with your agent.
Ask your agent if they will waive the difference due if you have signed a buyer’s broker agreement with them; otherwise, you might have to pay it yourself. Some brokers believe it’s unfair to penalize an agent, but the lender makes the final decision.
Agents for Estates and Closings
To complete a short sale transaction, you may need the assistance of a realtor and closing agent. The realtor should have experience with short sales so they can help you complete a home short sale.
You’ll need to know the qualities to look for in a realtor and the cost to sell a house in VA. You want to select agents who can negotiate with lenders to make sure that the amount they are willing to lose matches the homeowner’s needs. They will also need to be engaging, motivated, and honest.
An experienced real estate agent can make a big difference in finding and closing a short-sale property. Agents specializing in short sale properties may hold a Short Sales and Foreclosure Resource certification, a designation offered by the National Association of Realtors.
You can make sure your lender doesn’t foreclose and agrees to your short sale by working with an experienced real estate agent, although this will take some time. If you would like a cash offer for your house fast, We buy houses in Virginia and nearby areas.
After the Short Sale, Am I Still Obligated to Pay the Bank?
As long as your mortgage balance is greater than the proceeds from the short sale, the remaining balance is considered a deficiency. The bank may still require payment of a deficiency balance following a short sale.
Your bank may ask you to pay back the amount through an unsecured loan. In addition, they may send the remainder for collection or try to get a deficiency judgment. Lenders could also write off your debt and give you a deficiency waiver.
That’s what you need to know about the difference between short sales and foreclosures and how to sell your house through a short sale in Norfolk.
First, make sure you’ve done everything you can to try to save your home. Then search for Companies that buy houses in Norfolk with short sale experience and see if they can help you through the process.
Once it’s over, you’ll be free of your mortgage obligation, your credit will still be intact, and you can start over.