If you are one of the many Americans who have found themselves unable to keep up with their house payments in recent years, you have probably wondered at some point what your options are.
If your house is worth more than you owe on it, then you can likely sell it and may even be able to take some money out of it. However, if you purchased it during the bubble created in the middle part of this decade, chances are you owe more than your home is worth.
If that is the case for you, there are a few options available. First, try talking with your bank to see if they are willing to work with you on reducing your monthly payment.
There are even Federal programs you can take advantage of that may lower the principle or interest rate on your loan and make it easier to meet the payments.
If not, then you may need to decide between allowing your home to go into foreclosure or pursuing a short sale.
What is the difference between a short sale and a foreclosure?
A foreclosure is essentially a legal process that removes the homeowners from the property and gives it back to the lender.
When the lender takes possession of the house, the homeowners no longer have any interest in the property or any rights to remain there. The property is now under ownership of the bank or lending institution as real estate owned, or REO, property.
From the perspective of a buyer, these properties are not sold by a realtor. In fact, foreclosures are auctioned by trustee sale in the court for the county in which it exists.
Properties bought at foreclosure auctions must be paid for in full at the time of the auction or very shortly after.
There are a lot of risks involved in purchasing a foreclosure property. These risks include IRS liens, other loan claims, owners still residing in the property or damage to the property.
“In either case, it’s not the best
time for the property owner.”
A short sale is what happens when a homeowner owes more on a house than it is worth, but he or she is able to work with the lender to sell it for less than what is owed.
This may sound like a win-win situation, but it is actually a very difficult process.
First off, the bank must approve this type of a sale, and that can mean literally dozens of independent sign-offs and approvals. Second, there is no guarantee or obligation on the part of the bank to move forward with it.
From a credit perspective, having a short sale on your report is far better than having a foreclosure. They typically last for less time on your credit report and do not look as bad to future lenders.
From the perspective of someone looking to buy a short sale property, you will usually be dealing with the homeowner or their agent rather than a bank. Any offer is made to the owner and then presented to the bank for approval.
In the case of either a foreclosure or short sale, it is not the best of times for the property owner. It can be an even more stressful purchase than a usual home sale.
Sometimes the amount you save on these properties is not worth the effort to get it. However, if you are the owner who is trying to salvage his or her credit, foreclosure should be your final option.