If you’re facing a financial hardship and you have no home equity, you may be feeling stuck. A short sale could be the solution. In a short sale, or pre-foreclosure sale, a house is sold and the lender agrees to accept the sale price, even if it’s less than the balance owed on the mortgage, to help the homeowner avoid foreclosure.
Is a Short Sale the Right Option for You?
A short sale should not necessarily be your first choice if you’re struggling to pay your mortgage. You might be able to refinance your loan, or your lender might be willing to permanently modify the terms– for example, by changing the interest rate or length of the loan. You might also be able to sell your home and break even.
If you expect to have a long-term or permanent financial hardship, or if you owe more on your mortgage than your home is worth and you have tried to sell your house but couldn’t get a bid nearly large enough to pay off the mortgage, a short sale could be a good option. You might qualify for relocation assistance to help you move to a new home following the short sale.
A foreclosure could linger on your credit report for years and make it difficult to qualify for a car loan, a credit card or another mortgage. A short sale would have much less of an impact on your credit history and future financial prospects than a foreclosure, which means you’d be able to rebuild your credit and move on faster.
Depending on where you live, your lender might seek a deficiency judgment to recoup the difference between the sale price and the mortgage balance. The lender might agree to waive the deficiency, but you might owe taxes on forgiven debt. Discuss your situation with an accountant or a real estate attorney.
How to Negotiate a Short Sale
Contact your lender and explain the circumstances that caused you to have trouble paying your mortgage. You should also be prepared to provide information on your income and other debts. Ask the lender if selling your home in a short sale would be a good option. If the lender agrees to a short sale, contact a real estate agent to list your home. The lender and your agent will work together to set an appropriate asking price and will work with the buyer’s real estate agent.
There Is Hope
If you’re facing a financial hardship and you have no home equity, you may be feeling like you have no way out. A short sale could allow you to make a fresh start. This is not the appropriate solution for everyone, so you should discuss your circumstances and various options with your lender.