When it comes to avoiding the foreclosure process, one popular alternative to getting out from under a mortgage is through a short sale. In a short sale, your lender allows you to sell your home for less than what is still owed on the mortgage. While this would normally leave a deficiency balance that you would be responsible for, the major advantage of a short sale is that the lender will typically agree to waive that deficiency. While it doesn't allow you to keep your home, it will help you avoid the consequences of a foreclosure.
Of course, there are downsides to the short sale process. The real question is: are those downsides an improvement over losing your home through foreclosure?
A Short Sale Will Affect Your Credit Score
Put simply, a short sale will harm your credit score. It is worth noting that in most cases the damage a short sale causes to your credit score will be less than that of a foreclosure. In many cases, the negative impact can be noticeably less.
Some real estate agents have noted a FICO score drop from a foreclosure approximately two or three times as large as the drop from a short sale. However, there is data to suggest that for some homeowners, the effect on your credit score will be approximately the same whether you opt for a foreclosure or a short sale. The study by Fair Isaac found that a short sale will typically result in a 200 to 300 point drop in a FICO score – the same drop found after a foreclosure. These numbers are not conclusive, and it is always a good idea to discuss your options with a short sale attorney to understand the impact any decision you make could have on your credit score.
Other Methods of Foreclosure Protection
A short sale is not the only way to defend against the possibility of a foreclosure. There are other avenues that can not only stop your foreclosure, but potentially keep you in your home as well. These options include:
- Bankruptcy – Declaring either chapter 7 or chapter 13 bankruptcies is one of the most common ways to halt a foreclosure. Thanks to what is known as the automatic bankruptcy stay, your mortgage lender will be required to halt all collection activities against you as soon as you file your petition.
- Foreclosure Mediation – The U.S. Bankruptcy Courts have in recent years developed another option that involves resolving a defaulted mortgage without the need of a bankruptcy filing. This program, known as the Mortgage Modification Mediation Program, allows for the parties to negotiate an agreement outside of the formal confines of a bankruptcy proceeding.
- Loan Modification – One option that is available inside or outside bankruptcy is a loan modification. Loan modifications involve you and your lender re-negotiating the terms of your loan to give you a chance of keeping your home. It can involve lowered interest rates and even potentially forgiving missed payments.
Speak with a Las Vegas Short Sale Attorney Today
A short sale can be complicated. To have your questions answered, contact the Nevada short sale attorneys with Vohwinkel Law today.