Short Sale vs Foreclosure: The Facts

When trying to decide between a short sale and foreclosure, sometimes it’s easier for homeowners to just throw in the towel and let the agent do the work. It is important to seek legal advice from a professional before making a decision, but allowing the bank to have complete control may not be the wisest decision. By becoming more informed about short sale vs. foreclosure, you will be able to make a more confident and educated decision regarding your home.

Process of Foreclosure

A foreclosure occurs when a lender takes ownership of the property and removes the borrower. This occurs when the borrower cannot make the mortgage payments on a consistent basis. Foreclosures can be done through a real estate agent or sold at an auction. The lender can then sell the foreclosed property and collect and recover the unpaid mortgage balance.

This process begins when the lender doesn’t make the mortgage payment for three to six months. The lender will notify the borrower of foreclosure and the reinstatement period, which allows the borrower time to resolve any disputes. The mortgage balance then needs to be paid off within three months, and if not, a notice of sale will be given to the homeowner.

Process of Short Sale

A short sale can be used as an alternative to a foreclosure because it bypasses the extra costs and fees for both parties involved, but it does require a large amount of paperwork. A short sale occurs when the homeowner cannot make mortgage payments and owes more than the current market value of the property. Lenders are often hesitant to accept short sale offers because the proceeds from selling the house often equate to less than the mortgage payment, which is known as a deficiency. Homeowners may still be obligated to pay these deficiencies even after a short sale agreement. The homeowner will put the house on the market and if he or she receives an offer, the bank also needs to approve it. The short sale process can take three to six months to closer. If a homeowner is experiencing hardship such as divorce, unemployment, family death, or job relocation, banks will be more likely to approve a short sale.

Effects on Credit Rating

Unfortunately, foreclosures can cause the borrower’s credit rating to decrease by 200 to 400 points and will remain on the report for seven years. On the other hand, short sale usually only causes a credit rating to fall 50 to 130 points and a credit report will state that the short sale was “settled,” “paid as agreed,” or “paid in less than full.”

Future Homeownership

After a home foreclosure, an individual can buy a house in five years with some restrictions, or in seven years with no restrictions. After a short sale, an individual may be able to buy a home immediately and the lender will not require the loan to be paid back.

Purchasing a Foreclosed or Short Sale Home

Typically, short sales home are better to buy than a foreclosed home because the property has been inhabited. The house and utilities have been maintained, but short sales can take a large amount of time to close. On the other hand, buying a foreclosed house is usually quicker and they are sold at lower prices.

For more info, whether you’re thinking about selling or buying a short sale/foreclosure, visit: https://www.veitengruberlaw.com/Real-Estate-Transactions/

              

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What is the Best Foreclosure Alternative?

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Veitengruber Law spends a lot of time helping our clients stay in their homes. We work tirelessly on foreclosure defense matters, and we’ve saved countless properties from being sold at Sheriff’s Sale. Since we do focus much of our attention on keeping homeowners out of foreclosure, you may be wondering why.

In other words: if we dedicate so much of our time to avoiding foreclosure – it must be a pretty darn undesirable outcome, right? Foreclosure is right for some people, but many people have gotten themselves into an unfortunate financial jam and would like to get out of it without losing their home in the process.

What is the BEST ‘foreclosure alternative’?

When we are helping a client avoid foreclosure, it’s for one of several reasons:

  1. The homeowner doesn’t want to lose their home;
  2. The homeowner doesn’t want a foreclosure on their credit report;
  3. The homeowner wants to avoid a deficiency judgement.

Therefore, the best foreclosure alternative depends on the desired outcome for each individual client. If you are in danger of losing your home to foreclosure but you really want to keep your home, Veitengruber Law can help you negotiate with your lender to get you approved for a loan modification or refinance. In doing so, we are often able to bring monthly payments low enough for our clients to manage, allowing them to bring their mortgages current and continue living in their homes.

Another way to avoid losing your home to foreclosure is to file for bankruptcy. In doing so, your bankruptcy case will engage an automatic stay. An automatic stay is an injunction that prohibits any of your creditors from collecting or attempting to collect any money from you until such time as your bankruptcy case has been officially settled. The automatic stay also stops any foreclosure action dead in its tracks, giving you and your foreclosure defense attorney time to determine the best course of action regarding your home.

If you don’t want to or wouldn’t qualify for bankruptcy, you would very likely be approved for a loan modification as mentioned above. Getting approved for a loan modification or mortgage refinance would keep a foreclosure and/or bankruptcy from appearing on your credit report

For the homeowner who is ok with the sale of their home, but would really like to avoid the credit score damage inflicted by a foreclosure, selling via short sale may be the answer. A short sale involves getting permission from your lender to sell your home for less than the amount left on your mortgage.

Short sales are great finds for buyers, but why would a bank agree to accept (often significantly) less than what they are owed? The answer is simple: a short sale is the lesser of two evils. Lenders will almost always receive (a lot) more money for a property that is sold through a short sale rather than a foreclosure sale (Sheriff’s Sale).

In addition, if you can find a buyer for your home in a short sale scenario, your lender is much less likely to file a deficiency judgement against you. In a foreclosure, a deficiency judgement can be obtained by a creditor (your bank or lender) for the difference between the sale price and how much you still owed on your mortgage.

Theoretically, lenders can also petition the court for a short sale deficiency judgement, but the reality is that they often don’t pursue one because they’ve received more money than they would’ve if the property had been sold at Sheriff’s Sale. Also, many lenders want to stay in the good graces of their customers, and chasing down already distressed homeowners after a short sale has repaid a significant portion of the debt simply isn’t good for business.

The bottom line is that if you’re looking for a foreclosure alternative, there are a wide variety of potential solutions. Veitengruber Law has seen it all, and we can help you determine the best fix for you and your home.

Image credit: Nicholas Cardot

My Home has a Short Sale Offer; Can the Bank Still Foreclose?

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Making your way through the short sale process can be a long and tedious operation, but seeing the light at the end of the tunnel is incentive enough for most people to soldier on. How frustrating, then, to discover that your bank went ahead with foreclosure, even while you were negotiating (with the bank) for the sale of your home via short sale.

It’s true: even if your home is in short sale negotiations and has a solid offer on the table, your lender can still move forward with the foreclosure process. Naturally, the big question here is: Why would they do that? After all, there is generally a lot less paperwork involved in a short sale vs a foreclosure, and the bank will likely make more money, too. Bonus: no court involvement.

The short answer is that there are several reasons why this situation may present itself. Often, even if a lender approves a home for short sale, they still keep the foreclosure process moving forward in order to keep pressure on the seller. Sometimes, short sales repeatedly fall through, in which case the bank can simply say they’ve waited long enough, and – BAM – foreclosure.

Another reason this happens in big banks is a lack of communication between its thousands of employees. Larger lenders have offices all around the country, with departments and sub-departments at each location. While it would seem like a good idea to keep communication lines open – the reality is that many times the short sale department doesn’t talk to the foreclosure department and your property can simply slip through the cracks.

Many sellers hit the panic button when they receive news that their home has been foreclosed upon when they are so close to selling it via short sale. Luckily, as long as you are working with a competent attorney who is familiar with both short sales and foreclosures, your short sale will usually still be able to go through.

Fact: Even if your lender officially forecloses on your home, it still needs to be sold to someone in order for them to make any money. Experienced listing agents and attorneys will be able to talk to the right branches of a large lending corporation in order to postpone the foreclosure sale date (aka Sheriff’s Sale). As long as they know you are in negotiations with a qualified buyer, most lenders will put off the Sheriff’s Sale long enough for the short sale to take place.

The short sale process is one of the most complicated in all of real estate. It is more than likely that you will hit many bumps along your route to seeing your house sold through short sale, but for those who persist, it can happen. If your short sale end game looks significantly better than a foreclosure, the lesson you should heed is: “If at first you don’t succeed – try, try again.” – T.H. Palmer.

Image credit: Mike Licht

Avoiding the Short Sale Deficiency: What are My Options?

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If you’re living in a home with zero or negative equity and falling farther and farther behind on your mortgage payments, you may have considered or already applied for a short sale. When approved, a short sale allows the homeowner to sell a home for less than they currently owe the lender.

Oftentimes, lenders will ‘forgive’ this discrepancy amount, for several reasons. Big-name, well-known lenders usually want to maintain a good relationship and reputation with borrowers, and a short sale allows them to recover at least some of the money owed.

However, there are times (lenders) who refuse to forgive the deficiency amount and will sue the homeowner (who becomes the seller) for the difference between how much the home sold for and how much was still owed on the original mortgage.

If you are experiencing a lender who won’t forgive your short sale deficiency, and you have no way of paying said deficiency, it should be noted that going forward with the short sale is not your best option.

What, then, are your best options, you ask?

First and foremost, we would ask if there is any possibility of a loan modification making enough of a difference for you to be able to catch up on late payments. A real estate attorney will be able to negotiate with your lender to work out the modification details, if the numbers crunch just right.

If a loan modification isn’t able to budge the numbers enough to make it a real possibility for you to stay in the home, consider applying for a deed in lieu of foreclosure. Avoiding foreclosure in this way allows you to approach the lender rather than vice versa, and also avoids a Sheriff’s Sale of your home, which can be embarrassing.

For homeowners who get turned down for a ‘deed in lieu,’ the path that makes the most sense would be to file for Chapter 7 bankruptcy. Naturally, we cannot know if you would meet all of the necessary qualifications for a NJ Chapter 7 bankruptcy without having a look at all of your finances.

In a situation like this, it is in your best interest to meet up with a bankruptcy/real estate attorney in New Jersey who has experienced a lot of success pulling through for his/her clients.

Some important pieces of information to bring with you to your FREE consultation with your NJ bankruptcy lawyer include:

  • How much total (unsecured and secured) debt do you currently have? Bring as many credit card statements, auto loan invoices, mortgage paperwork, utility bills, etc as possible with you to your first meeting with your attorney.
  • Proof of any tax debt;
  • Your current and recent total income and expenses;
  • A list of your exempt and non-exempt assets;
  • Your credit score. Come with the most recent copy of your credit report, if possible. We realize your score will be low, but we want to have a starting point we can look back on as we work to get your score moving upward!

Second in importance to working with the right bankruptcy attorney is to GET INFORMED. Read all you can about your options, including:

We have a plethora of other helpful information that will aide you in getting prepared for your attorney consultation. Please visit our blog at your leisure. Like and follow us on Facebook to get real time updates on the successes we experience for our current clients. You can become our next success story!

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Mortgage Servicer vs Investor: What’s the Difference?

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When it comes to owning a home, especially one that you’re considering selling through a short sale, it can sometimes be confusing to determine exactly who you need to get permission from.

In previous posts, we’ve explained how New Jersey short sales work, including the general timeline involved and what type of situations allow for short sales to occur. In NJ, homeowners who have experienced significant changes in their lives that have caused financial difficulties can ask their lender to approve a short sale. A short sale is essentially the sale of the home wherein the sale price does not cover the amount still owed by the mortgagee.

A question raised by many people attempting to apply for permission to move forward with a short sale is:

Who is my lender?

While this may seem like a silly question, in reality, it’s a very good one, and one that can be surprisingly hard to answer.

To those homeowners who are humming along, paying their mortgage just fine, it may seem that their lender is of course the company to whom they pay the mortgage bill every month.

Oftentimes, however, the lender who you originally borrowed money from in order to buy your house, sells your loan to a company known as an investor. If this happens, the investor then becomes the official loan owner.

Investors are the ones with the money, but they often don’t want to deal with the minutiae involved in collecting said money from the people. Therefore, the investors then hire a loan servicer to take care of sending out mortgage statements, taking payment, disbursing taxes and HOA payments, etc.

To get even more confusing, many times the investor hires the original lender to service the loan.

If you’re still confused, you’re not alone! The bottom line is that the company to whom you write a check every month for your mortgage may only be handling the paperwork for a bigger investment company that works in the background. If this is true, though, you’ll need to get your investor’s permission before moving forward with a short sale. They have the ultimate say in these types of decisions because they are the official note holder.

Sometimes lenders own and service loans simultaneously. These loans are known as portfolio loans. Basically, lenders need to keep some loans as part of their personal “investment portfolio” so they look good to the public, therefore attracting new customers. People who are approved for portfolio loans typically have very good to excellent credit, because lenders want to keep their overall loss-risk low.

Those borrowers who are granted a portfolio loan will have a much easier time communicating with their lender and will usually experience less trouble negotiating with them when changes to the mortgage are warranted.

If you do not have a portfolio loan, you’ll need to find out who owns the rights to your mortgage in order to make any loan changes (modifications) or to sell via short sale. Many homeowners will discover that either Fannie Mae or Freddie Mac (government entities who work with investors) own their loan. If your loan is not a Fannie Mae or Freddie Mac owned mortgage, it may be owned by a private investor.

If you are considering a short sale but are having trouble finding out who you need to get permission from, the next step is to work with a loan modifications attorney in New Jersey. He or she will be able to guide you toward finding out who owns your mortgage, and can also help you negotiate the short sale itself.

 

Image Credit: Mark Moz

After the Short Sale: What is a Deficiency Judgement?

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For homeowners who have been struggling to make their mortgage payments along with other monthly living expenses, filing for bankruptcy is the best way to either wipe out or reorganize debt that’s become overwhelming.

When filing for bankruptcy, many homeowners give their homes up to the foreclosure process so they can move to more affordable housing.

Another option that’s available to distressed homeowners (whether filing for bankruptcy or not) is to sell the home via short sale. In order to get your lender to agree to a short sale, you’ll have to provide them with proof that you’ve experienced a significant change in life circumstances. For example: job loss, mandatory job relocation, divorce, death of a spouse or disability, to name a few.

Many people believe that selling their home through a short sale will look better on their credit report versus having their lender foreclose and sell via Sheriff’s Sale. The truth is that bankruptcies, foreclosures and short sales are all going to appear on your credit report and none of them are going to do your credit score any favors. At least not immediately.

However, if you sell your house through a short sale, it is possible for it to have a bit less of an impact on your credit score if you can get your lender to report the debt as ‘paid.’ Often, lenders will report short sale transactions as ‘settled,’ which indicates a deficiency, which will knock more points off your credit score.

What exactly is a ‘deficiency’ and how is it going to affect me?

You may have heard the term ‘deficiency’ thrown around a lot when referring to foreclosures and/or short sales.

Essentially, when you sell your home via short sale, you (as long as your lender agrees) accept a purchase price that is less than you still owe the bank. The difference between how much you owe and the short sale purchase price is called the deficiency.

Example: You owe $190,000 on your mortgage. Your home sells at short sale for $140,000. The $50,000 difference is the deficiency.

The reason it is important to be aware of the deficiency amount is because lenders in New Jersey are legally entitled to seek repayment of that amount from you – the original borrower.

As you can imagine, after falling behind on your bills, meeting with your bankruptcy attorney to discuss your options, opting for a short sale, and (finally!) breathing a sigh of relief when your house sells – it can be more than a little disheartening to discover that you still owe $50,000. For a home that you are no longer living in, and no longer own.

Here’s the good news: even though New Jersey does not prohibit deficiency judgements, most lenders do not pursue them. To err on the side of caution, however, have your attorney negotiate a release of liability from your lender. This must be in writing so that it will hold up in court.

If your lender isn’t keen on the idea of signing a written release, it may be possible to sway them by negotiating a small fee in exchange for the release. This will make your lender feel as though they are getting at least a small payment, and will allow them to avoid expensive court proceedings that would be required for them to sue you for the deficiency. With a release of liability in hand, you’ll be able to relax and move on after your short sale is completed.

Image credit: Diana Parkhouse

Short Sales: How They Benefit the Seller

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There are many reasons why you might suddenly find it challenging to pay your mortgage every month. Perhaps you were injured and had to take an extended time off from work. You may have even become permanently disabled, or maybe you got divorced or experienced the death of a spouse. Regardless of the reason(s) for your newfound financial troubles, you are undoubtedly wondering what your options may be at this point.

If you want to keep your home, and think you may be able to afford it if your payment was just a little bit lower, you may benefit from a mortgage refinance. Maybe your overall debt level is sky high and you see no way out – you can file for bankruptcy and start fresh with a brand new blank slate.

If meeting your mortgage payment every month is your main struggle – it may be in your best interest to sell your house and move somewhere more affordable. However, the (often) lengthy time homes spend on the market may be longer than your finances will last.

In this situation, you may qualify to list your home as a short sale property. A short sale involves selling your home for less than the amount that you still owe on your mortgage. In order to qualify to sell your home in this manner, you’ll have to show your lender that you’ve suffered a hardship – like job loss, decreased income, divorce, spousal death or disability.

You’ll create an agreement with your lender about what will happen after the home sells. In many cases, your lender will agree to discharge the leftover debt that remains after the short sale. This means you will owe nothing, and you will no longer have any responsibility toward that mortgage – allowing you to move on.

One of the best things about short sales is that they offer distressed home owners a foreclosure alternative. Foreclosure is definitely the right choice for some people, but for others, a short sale can accomplish the same thing without the negatives that come along with a foreclosure being placed on your credit report.

Mortgage experts say that a foreclosure can cause your credit score to dip up to 250 points below its current number! On the other hand, a short sale appears on credit reports as a “pre-foreclosure in redemption,” and typically only lowers your score by around 100 points.

If you go through with a short sale, you will most likely be able to qualify for a new mortgage that is more affordable with a good interest rate in as few as 18 months.

An additional reason to consider a short sale: relocation incentives (read: ca$h!!!) are frequently offered by some lenders to short sellers. This will give you enough money to start over after your (too expensive) home is sold.

On top of the cash incentive, you should know that short sellers aren’t always required to pay their attorney’s fees or real estate broker’s fees. It is possible to negotiate these fees into the short sale agreement so that they will be paid for by your mortgage lender.

Although the new millennial home owners may typically associate short sales with the 1990s, the current market is once again seeing many short sales being approved. To learn more about your options, contact Veitengruber Law for a free consultation via telephone or in-office.

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My Bank Won’t Accept a Deed in Lieu of Foreclosure

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Unfortunately, banks and lenders are under no obligation to accept a deed in lieu of foreclosure application from you, or from anyone, for that matter. While it may seem like a much more attractive alternative than foreclosure for you, deeds in lieu are not popular among most lenders.

What is a deed in lieu of foreclosure?

Filing for a deed in lieu of foreclosure (also referred to as a DIL) is an option for a distressed homeowner who is either having trouble paying his monthly mortgage payment or is unable to do so at all due to a change in life circumstance. A DIL is a process in which the homeowner essentially gives his home to the bank and walks away.

Since foreclosure is such a negative event to have listed on a credit report, many people desperately try to avoid foreclosure at all costs. A foreclosure happens when the bank or lender essentially puts your home up for sale if you have not been making payments. You must vacate the home and find another place to live. Even worse news regarding foreclosure is that afterwards, the lender can still sue you for what is known as a “deficiency judgment.”

If the bank secures a deficiency judgment, the homeowner will then owe the bank the difference between what was still owed on the mortgage and what the bank was able to sell it for in a foreclosure sale. So, while you will have already lost your home and your credit score will be marred, you will also have the possibility of still owing money to the bank. All of these reasons combined are why many people are choosing to apply for a deed in lieu of foreclosure.

A deed in lieu of foreclosure (DIL) occurs when the lender agrees to accept ownership of your home without pursuing foreclosure or deficiency judgments. It is important that you get a detailed agreement in writing during your deed in lieu process, so that you are assured that there will be forgiveness of any money you may still owe on the mortgage, along with any deficiency between what is still owed and what the home eventually sells for.

Lenders are hesitant to accept deed in lieu applications. The main reason for this is that they are in the money business, not the property business. Taking care of a home that they now essentially own (via a deed in lieu of foreclosure) means there will be further costs in order to maintain the home, such as homeowners fees, taxes and general upkeep of the home’s exterior and interior until it can be sold.

In order to increase the chances of your deed in lieu application being approved by your bank, you’ll have to be able to prove that you are indeed suffering from significant financial hardship. When a lender sees that you are at least a month behind on your mortgage payments, they are more inclined to accept your proposal.

Additionally, property with liens on their title are not attractive to lenders for a deed in lieu. It’s also extremely important that all of your DIL application paperwork is filled out completely and correctly.

Deeds in lieu of foreclosure do appear on your credit report and will cause an impact on your credit score, though it will be much less of an impact than a foreclosure. Alternatives to filing for a DIL include applying for a loan modification and applying for federal assistance through the Home Affordable Modification Program (HAMP). Both of these options will avoid any negative effects on your credit report or credit score.

To learn more about the specifics behind filing for a deed in lieu of foreclosure or applying for a loan modification to make your payments more affordable, contact Veitengruber Law. We have achieved DILs for many clients before you, and we would love nothing more than to help you get the best result possible as well.

 

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