Homeowners in foreclosure do not have many options, but some of the options that they do have are:
  1. Sell your home through the normal channels
  2. Bring your mortgage current by making the missed payments and paying the penalties
  3. Refinance your mortgage with another lender
  4. File for bankruptcy

If you can do any of the first three on the list above, then I highly suggest you do it.

However, if you can not sell your home through normal channels because you owe more money that than home is actually worth, you can not bring your mortgage payments current because you don’t have the money to do so or you can’t refinance your loan because your value is less that what you currently owe or mortgage guidelines have changed and make it impossible to qualify for a new loan, then a short sale could be for you.

I would not advise you to file for bankruptcy or allow the foreclosure process to continue and then complete. If you look at the facts you can see why you should do a short sale over filing for BK or foreclosure. As you may already know if you have a BK or foreclosure on your credit report, it will stay there for the next 7-10 years and make it extremely difficult for you to acquire any sort of credit. Whether it’s a credit card, auto loan, or mortgage, it will be very hard if not impossible.  But if you do a short sale and are successful then you will be able to acquire credit much sooner than if you were to file for BK or complete a foreclosure.

In my opinion and expertise on this subject the back bone of the short sale process is Financial Hardship. Meaning that you are unable to make your payments what so ever. Whether you have lost your job, taken a reduction in income, anything to hold you back from paying back your obligation would be considered a legitimate financial hardship.

Short sales are seen as a last resort for the banks. Banks have
departments called Loss Mitigation and their sole purpose is to decrease any loss that the bank might acquire with there bad loans. In order for a bank to approve a short sale and take that loss, they must be convinced that you are in financial hardship and you can not pay them back the full amount that you owe.

If think a short sale can work for you because you have lost equity in your home, but you still have a job and are able to make your payments, think again. Unfortunately for you it just becomes a bad investment and you are responsible to paying the loss that you have acquired. A legitimate financial hardship is required to allow the short sale to be approved.



In my next article I will discuss who owns the property after a short sale and what you should do about your property taxes. Check back for more valuable information.