Many people end up facing foreclosure in Nevada, and when they are in danger of losing their homes, negotiating short sales are far better options than letting the homes go to foreclosure for multiple reasons. While a short sale will still have a negative impact on a person’s credit, the damage will not be as severe as what may happen with a foreclosure. People may also be able to purchase new homes in far shorter times following short sales than they might otherwise be able to if their homes are lost to foreclosure.
Short sales may also involve fewer fees and costs for debtors and lenders alike, and it may be possible to negotiate a notation that the mortgage was satisfied in full in order to further minimize any resulting negative impact. A real estate attorney may help to negotiate a short sale for his or her clients who are in danger of losing their homes to foreclosure.
How Short Sales Differ From Foreclosure
When a borrower is unable to keep up with his or her mortgage payments and falls behind, the lender may foreclose on the property. When a foreclosure happens, the lender assumes ownership of the property, and the borrower must move or be evicted. A short sale is an alternative option for debtors who are able to secure their lenders’ agreement. In a short sale, a home is sold for less than the balance of the mortgage.
In a foreclosure, the lender sells the foreclosed home at auction, and the proceeding is initiated by the lender. Debtors are required to report foreclosures on their loan applications in the future. By contrast, the homeowner sells the home in a short sale, and it is normally handled by a realtor. The debtor may or may not have to report the short sale on his or her future loan applications.
When a person’s home is foreclosed upon, he or she may expect his or her credit score to drop from between 200 and 400 points. The foreclosure will remain on the debtor’s credit report from between five and seven years. Short sales normally result in a drop in the credit score from between 50 to 130 points. The short sale will appear on the debtor’s credit report if his or her lender reports that the debt was reduced through a short sale.
Buying New Homes
One big advantage of choosing a short sale over a foreclosure is the ability to purchase a new home. When a person goes through a foreclosure, he or she will not be eligible to purchase a new home for five years. At that time, he or she may be able to buy a new home, but restrictions will be in place. It takes about seven years before a debtor who has gone through a foreclosure to purchase a home without any restrictions.
When a borrower is able to secure his or her lender’s agreement to a short sale, he or she may be able to purchase a home immediately afterward in some cases. If the debt reduction is reported on his or her credit, the debtor will generally be able to buy a new home in two years.
Negotiating Short Sales
A short sale might be available to a homeowner whose home is worth less than the balance that he or she owes on the home’s mortgage. If the homeowner is unable to make the mortgage payments, a short sale may be able to be negotiated. A real estate attorney might contact the lender in order to negotiate a short sale on behalf of his or her client. If the lender agrees, then the home can be listed with a realtor for less than the mortgage balance. In return, lenders generally agree to reduce the debt to the amount that is gained from the homes’ sales. When a short sale is allowed, both the homeowner and his or her mortgage lender must agree on the sales price before the home can be sold.
Negotiated Credit Reporting
One important aspect of short sale negotiation is trying to secure the lender’s agreement to also report that the mortgage was paid as agreed. When a short sale is conducted, the lender may report the loan as paid as agreed, paid for less than the amount owed or as a settled debt. Securing a lender’s agreement to report it as paid as agreed may help to substantially lessen the negative credit impact that the debtor might otherwise face.
Short sales may be a good alternative to foreclosure for homeowners who are unable to pay their mortgages. People who owe more on their mortgages than their homes are worth might want to investigate short sales. A real estate attorney may help negotiate the terms for his or her client.