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When homeowners are delinquent in their mortgage payments and refinancing is no longer an option, they may be at risk of losing their home. Homeowners who face this situation often ask which is better: to foreclose their property or to short sell it?
A short sale occurs when loans against a property are greater than what the property can be sold for. A lender agrees to take less than the full loan payoff in return for the property. Short sales are typically set up to avoid foreclosures and are often preferred by lenders, since foreclosed properties may not sell at auction, which would mean lenders would need to maintain, list and sell the property themselves.
A foreclosure begins when the homeowner defaults on mortgage payments. A foreclosure is an action taken by a bank or lender to repossess a homeowner's property, which terminates all the rights of the homeowner. After a foreclosure, the real estate becomes the property of the original lending institution.
Short sales carry less negative effects on a homeowner's credit than foreclosures and are seen as less risky. Short sales affect a homeowner's credit report by 80 to 100 points, whereas a foreclosure typically drops a credit score by 200 to 300 points.
After a short sale, it takes homeowners 2 years before they can purchase another property, whereas after a foreclosure, a homeowner needs to wait around 5 years before purchasing another property.
In a short sale situation, the homeowner remains on the title of the property as the official property owners that are trying to sell the property. In a foreclosure, the homeowner takes no part in the sale, since the lender takes complete possession of the property.
A real property attorney can help you determine if a foreclosure or short sale is best for your situation. If you are facing financial difficulties and can no longer afford to pay your mortgage, contact Attorney Search Network. We can help you find a real estate attorney in your area that can advise you and assist you on a foreclosure or short sale.
If you have any questions about the information provided above, please contact us. Call us toll free at (800) 215-1190 or fill out our online form for your Real Property lawyer referral.