Depending on the seller’s situation, there are many options to consider before attempting a short sale.
- Discuss your situation with the lender
- Turn the home into a rental
- Deed in lieu of foreclosure
- Threaten to file bankruptcy
- Stop making payments
- List the property and negotiate a short sale
Discuss your situation with the lender:
The lender should contact their lender as soon as trouble arises. A lender may be willing to make accommodations if a borrower finds himself or herself in a difficult financial situation, particularly if it is temporary. The key is to let the lender know up front, before the problem becomes too serious to work out with the lender. Lenders may allow borrowers to:
- Reduce the payment
- Defer the payment
- Change the loan terms which includes renegotiating the interest rate, monthly payment amount or maturity date, or waiving late payment changes.
If payments cannot be made in a timely fashion, lenders may extend the “grace period”and work with the borrower. Lenders may even agree to delay filing a Notice of Default if, among other things, they feel they are informed about the borrowers intentions. This may make it easier to sell the property, and may preserve the borrower’s credit.
Turn the home into a rental:
Is there the possibility of renting the property and paying the difference between the rent and the mortgage payment while looking for other living options for the borrower?
Deed in Lieu of Foreclosure:
The borrower voluntarily delivers title to the lender and the lender accepts it in full satisfaction of the debt. The lender then owns the property and can dispose of it as it sees fit. This effectively avoids the whole foreclosure process and if the lender agrees to this, the homeowner would have to vacate the property and again, there could be significant tax implications to the homeowner as their credit being compromised.
If the borrower declares bankruptcy, the foreclosure process is temporarily put on hold. However, the lender may request the bankruptcy court to lift the automatic stay with respect to the lender’s loan and resort to its remedies under state law, including foreclosure, if the lender can show justification to proceed. Some borrowers think bankruptcy offers the best way out, but the borrower’s credit may be seriously impacted for many years.
Stop Making Payments:
Stay in the property until the property goes through the foreclosure process. The timeline can vary, but generally, the timeline does not begin until the lender feels they have exhausted all avenues for curing the payment delinquency. Normally, this happens after the borrower has missed three monthly mortgage payments and the Notice of Intent to Foreclose has expired.
The borrower has probably been contacted by the lender several times prior to beginning the foreclosure process. The official foreclosure process then begins by the lender contacting a trustee and instructing them to file a Notice of Default. This could take anywhere from 6-9 months, possibly longer. Once the NOD has been recorded it takes 120 days to complete the foreclosure process. The homeowner’s credit will be severely affected, however, they may have been able to stay in the house for many months saving their money by not making the mortgage payment to prepare for relocation once evicted.
Listing the Property:
Get an offer and negotiate the short sale with the lender(s). There is no guarantee that this will be successful and no guarantee how much time and energy will be put into the process. If this is the choice that is determined to be the least disruptive and the lesser of all other choices, then contact a REALTOR who is a Short Sale Specialist to move forward.