While we’re far from seeing a rerun of the 2008 housing crisis, many homeowners are at risk of foreclosure. Experts predict that the number of loans going past their 90-day due date will likely rise by late 2021 or early 2022 when the forbearance relief likely ends.
Many homeowners who cannot repay their loans are likely to consider a short sale to avoid foreclosure. Here’s what you need to know if you’re contemplating the idea.
What Is a Short Sale?
A short sale is when you sell your house for less than what is owed as the mortgage. The lender has to agree to this arrangement because it involves forgiving the remaining balance of the loan. Homeowners usually pursue this step when they can no longer repay their loan and are desperately looking for a way to avoid foreclosure.
How Does the Process Work?
A short sale is contingent on the lender’s approval because it usually means they will end up with far less than what is owed on the mortgage. The seller must go through a lengthy vetting process that proves that they have run out of options to repay the loan.
The process begins by submitting a short sale package, which is a set of documents that includes bank statements, copies of bills, pay stubs, assets, and more. These papers are collectively called hardship papers. They prove that the homeowner does not have the means to pay the difference.
The next step involves finding a buyer who is unrelated to the seller, has enough financial resources, and makes a reasonable offer. The lender may agree to the offer or make a counteroffer. When interested parties agree, the sale is completed. Then, the seller is released from all or some of the original loan’s responsibilities.
Advantages of a Short Sale
- You can avoid foreclosure.
- While your credit score takes a hit, it’s less than what would happen if the house is foreclosed.
Disadvantages of a Short Sale
- You may not be entirely forgiven for the remaining amount. You could be asked to sign a promissory note for the remaining debt, or the rest of the amount owed could be turned over to a collection agency.
- It is rare for the lender to agree to a short sale.
- Your credit score will go down.
A Better Alternative
You can avoid these complications and prevent a short sale by reaching out to a cash home buyer. At Go Fast Offer, we buy houses in Phoenix as-is and for cash. You don’t have to list the house or hire a realtor. Plus, you don’t have to undertake repairs. The best part of this process is that you can sell your property in just seven days or less!