If you fall behind on your mortgage payments and can`t get caught up, you could be on the road to foreclosure. However, there may be options before you get that far, including selling your home in a short sale.
When you borrow money to buy a home, you have what`s known as a secured loan, because the debt is secured by your home. You are essentially agreeing that if you don`t make your payments as required in the loan contract, the bank can take your home to satisfy the debt.
Most lenders start foreclosure proceedings once you fall at least 90 days behind on your payments. At that point you will receive a notice of default. Once you reach this point, it is very difficult to become caught up. If you cannot get current on your payments, your bank will begin to work toward foreclosing on your property.
How long this process takes depends on where you live. Some states require your lender to file a lawsuit against you, while in other states, your mortgage is held in trust and all the bank has to do is ask the trustee to foreclose. In states where judicial proceedings are required, foreclosures can take up to a year or more. In non-judicial foreclosure states, the process can take as little as six months.
Once the lender has foreclosed, it owns the deed to your home. The lender usually will give you a certain amount of time, such as 30 days, to vacate the property. If you don`t do so voluntarily, the lender can have local law enforcement forcibly remove you and your belongings.
A short sale involves selling your home for less than it is worth. If you are faced with foreclosure, one of your options always is to sell your home. However, that can be difficult to do if you owe more on your mortgage than you can get from a sale. In that case, you have to work with your bank and get its approval to sell. Before the bank will consider a short sale, you have to show financial hardship that prevents you from continuing to pay the mortgage, which shouldn`t be that difficult if you are already facing foreclosure.
You can put your home up for sale at any time, but the bank needs to approve any offer that is less than what you owe if you don`t have the financial means to make up the difference. It`s best, therefore, to work with the bank from the start. Short sales can often turn off buyers, because it can take the bank a long time to approve an offer.
Depending on which state you live in, the bank may be able to sue you for the difference between what you owe and what you got for the house, even though it agreed to the short sale. Even if it does forgive the debt, you might be hit with a tax bill for the forgiven debt.
Many people think a short sale is better for your credit score than a foreclosure, but that`s not the case. They are both reported as settlement of a debt and will reduce your score by approximately the same amount. Short sales really only benefit lenders, which tend to come out better financially.
If you are facing foreclosure or a short sale because of medical or credit card debt you have accumulated, National Debt Relief may be able to help you get back on your feet.