Advantages of a short sale are plenty. It's a question frequently asked and thought I'd help spread the word. Deciding to do a short sale in Connecticut or anywhere else is an important decision that can dramatically change lives for the better. It's an emotional decision. It's a stressful decision and one that can paralyze a family into doing nothing... which is usually the worst decision a family can make. If you're a home owner that has to sell your home due to health reasons or cash flow reasons AND you owe more on your home than it's worth in today's market, you may be a perfect candidate for a short sale. Why? For several reasons actually. Here are a few advantages of a short sale to consider:
1. Selling your home and downsizing can fix your cash flow problems so that you're living within your means and not depleting your savings that you planned to use for retirement. I've met families that tried to 'hang on' and use up their last bit of lifetime savings to meet their obligations, only to enter into a short sale anyway, and this time with no retirement plan. A short sale is designed to help you. Take advantage of a short sale while the laws are on your side and before you run out of money!
2. Selling your home short provides the possibility to sell your home to a buyer at market value while relieving you from any deficiency owed to the bank. That's right, a huge advantage of a short sale is that you get a chance to walk away from the difference between what you sold your home for and the amount owed to the bank. A great real estate agent will negotiate this for you with your bank.
(Note): Clients are quick to point out that they are still responsible for taxes on the difference. Well, that by itself can be true...but it's not the whole truth. The whole truth is that President Bush signed the "Mortgage Debt Relief Act" on Dec. 20, 2007 that protects homeowners from their obligation to pay taxes on their forgiven debt (the act is set to expire at the end of 2012 as of writing this blog). You still will receive a 1099 from your lender showing the forgiven difference as additional income. Please know that it's coming and it doesn't negate your protection from the act itself. It's the bank's obligation to send you a 1099 so they can write off their losses. It doesn't mean that you are required to pay that amount. If you qualify, a great accountant will prepare your taxes with the proper representation that protects you from having to pay taxes on your forgiven debt. This by itself is a tremendous advantage that short sales have over alternatives.
3. Your personal credit is affected very little, if at all by going through a short sale. Clients are lead to believe that doing a short sale ruins your credit when the reality is that a short sale by itself doesn't affect your credit like a foreclosure or deed-in-lieu would. These two items are reportable and identifiable on a credit report and they do bring down your scores significantly. An advantage of a short sale is it typically shows up on your credit report as "mortgage satisfied" with a note saying that you "settled for less than agreed". Now, couple that with the fact that your debt has just been satisfied by a short sale can by itself actually help your credit scores and unlike a foreclosure and deed in lieu, there is no code built to report a 'short sale' in your credit report. The mistake that many people make is through their online research. They find people who went through a short sale and read stories about the big hit their credit took. What they aren't telling you is the whole truth... that they were late several months before selling their home... and that is reportable on their credit and the reason their credit scores were affected. The trick is to project ahead of time that you will have an unrecoverable cash flow problem and decide that a short sale will benefit you. Then find an experienced agent to help you through the process before any damage is done or retirement accounts depleted.
4. I've often heard foreclosure and bankruptcy referred to as the 'double kiss of death'. Families will hide too long from their financial truths and find themselves in foreclosure. They're emotional and angry at the banks and succumb to the banks foreclosure tactics. What's important to understand is that the primary problem doesn't go away. The bank still has a mortgage signed by you and your promise to pay that debt. That problem comes back after a foreclosure. The bank wants and is entitled to the difference between what they eventually sold the home for and your mortgage amount. You've lost total control of how much your home sells for AND are still responsible to make up the short fall... regardless of the terms or final sales price that you never agreed to. Is that really a place you want to be? A place where you control nothing and are responsible for everything...no thanks! In Connecticut, the banks can pursue you for the difference between what you promised to pay and what they sold the home for (less their expenses of course). More debt collection phone calls and legal fees and court appearances are all possible until the debt is paid. The logical next step to protect yourself is to file bankruptcy....which is not cheap. If you thought that the paperwork for going through a short sale was excessive, wait until you have to produce mountains of paperwork in a bankruptcy. Before you decided that a foreclosure is the quickest way out, you're likely to find that it's actually the longest, most painful and most expensive of your options and highlights the advantages of a short sale.
5. At a very crude level, there is a simple difference between a foreclosure and a short sale. If you are a short sale candidate and you choose foreclosure instead, it puts everybody you know on notice that you just plain gave up, didn't care to take responsibility and walked away from your obligations. You figuratively handed the keys back to the bank and said "here...this is now your problem" and you took off. Conversely, with a short sale, you have a conversation with the bank. You show that there's hardship. You work with them to find a buyer. You upkeep the house and do your part in minimizing the bank's loss and honoring your commitments the best way you could. You hung in there and worked with the bank to a best possible conclusion. You showed character and faced the music. That's a major advantage of a short sale and a whole different story to tell when you're faced with trying to explain a foreclosure. Where would you rather be?
These are just a few of the advantages of a short sale vs. foreclosure. There are more. Seems like a simple choice when you know what's at stake. Notice I said simple choice. I know it's not an easy choice and when you're able to remove the emotion and focus on the advantages of a short sale, it really is a simple decision.
The reason I decided to specialize in short sales is to help those who need it. There are few times we get to experience the relief together with someone we helped triumph over a hardship than with a short sale. I've experienced the rebirth of families and smiles that were otherwise gone when I met them. It's a lot of work and definitely worth it. For more information about short sales and a great Q&A resource, click Short Sales Q&A. For more information about short sales in Fairfield County, click CT Short Sales. If I can help you or someone you know through difficult times and difficult decisions, please call me. I love to help! Tom Braunagel, 203-268-4994.