A homeowner can sell their home for less than they owe if the circumstances are right. This is called a “short” sale. Short sales are often beneficial for the seller, the buyer, and the creditor. A person can market the sale as a short sale to attract buyers. This may sound like an easy out for someone who cannot make payments, but there are negative consequences to be considered when considering a short sale as a debt relief option.
So, What Is a Short Sale?
A “short” sale of a home is when the seller sells their house for less than they owe the mortgage lender. If someone is behind on payments, they may consider this as an option to avoid foreclosure or bankruptcy. In order to be able to utilize the short sale option, the seller (debtor) must apply for permission from the bank (creditor). Why would a bank agree to this? In many situations, they can recuperate more of the owed money than they might be able to if the debtor files for bankruptcy or the home is foreclosed on.
Why would anyone choose to short sell their home?
The Benefits of a Short Sale
Perhaps the biggest advantage of a short sale to the debtor is the mitigation of damage to their credit score. When a house is lost through foreclosure, the effects on a credit score can last a decade. Some other benefits include:
- Freedom of fees associated with the sale of the home. In a short sale, the bank covers these fees;
- Avoiding bankruptcy;
- Relief from the stress of mounting missed payments.
Of course, there are downsides to utilizing the short sale option.
The Cons of a Short Sale
The purchase of a home is supposed to be an investment. Unfortunately, if a debtor chooses to do a short sale, they will not see any returns from that investment. Additionally, most people rely on the profit of a home sale to use for a down payment on their next home. It can be very difficult to start over later in life and some people will never own a home again after a short sale.
What Can You Do Instead of Short Selling Your Home?
For many, chapter 7 bankruptcy is a better option than short selling. Bankruptcy can allow you to get caught up on payments and keep your home.
If you are behind on mortgage payments and you need assistance understanding your options, you are not alone. Elias Dsouza of Dsouza Legal Group has been helping people navigate their personal debt for over 15 years. Contact Elias today for a free consultation.