Falling behind on your mortgage can be terrifying. In some cases, the lender may refuse to accept mortgage payments until you can pay the full amount of your delinquent payments, and this can mean falling deeper in debt as each due date passes. If you have exhausted your alternatives, you may have decided to relieve yourself of the debt by letting go of the house.
There are two ways to do this. You can allow the bank to foreclose on you, or you can sell the house. If you owe more than the property is worth, you may think it will be impossible to sell because you could never get the amount of money you need to repay the debt. However, you may be able to do a short sale.
Understanding the difference between a short sale and a foreclosure may help you make an informed decision about the best alternative for your situation. For one thing, having information about your options may prevent you from making rash decisions in a panic, such as accepting help from unscrupulous companies who offer debt relief.
Foreclosure or short sale?
You may already understand what happens when a lender forecloses on your home. After you miss a certain number of payments, the lender begins the process of foreclosure by filing a Notice of Default with the New York county in which you live. You will have a limited time to come up with the delinquent amount or sell the house before the lender schedules the auction of your property.
A short sale, on the other hand, is an option when you owe the lender more than the market value of the property. Often, a short sale will not damage your credit rating as much as a foreclosure might, but it is a long and complicated process. Short sales include the following steps:
- Asking the lender to accept a lower amount than you owe for the property
- Negotiating with the lender for an acceptable amount
- Listing the property with an agent who specialized in short sales
- Renegotiating with the lender if a potential buyer offers less than the lender agreed to
You may also have to convince the mortgage holder to release you from the possibility of a deficiency judgment, which is where the lender places a lien on you for the balance you owe after the short sale. This type of negotiating can be intimidating, especially if you are already feeling pressure from the lender. Whether you opt for a short sale or foreclosure, seeking the assistance of an attorney may be a wise move.