Are you struggling to pay your mortgage payments in Massachusetts? If so, you could be served with foreclosure papers if you fall behind on your loan payments. However, you may have one or more options to avoid foreclosure. At Logan A. Weinkauf, P.C., our attorneys can discuss a short sale and other options to help you get out of your mortgage without a foreclosure on your record.
What Is a Short Sale in Massachusetts?
A short sale occurs when you sell your home for less than you owe to your mortgage company. Your lender must agree to the short sale because you cannot sell your home without the lender releasing the mortgage lien. The agreement for a short sale must be in writing from the lender.
Lenders may agree to a short sale to avoid the cost and time of a foreclosure. The cost of foreclosing a mortgage can be expensive. Furthermore, the bank incurs costs of maintaining and selling the home after it forecloses the mortgage. The mortgage company may determine a short sale is a better option than taking the home through foreclosure.
What Are the Pros and Cons of a Short Sale in Massachusetts?
A short sale may seem like a good idea. You sell a home you cannot afford to keep without paying more than you owe for the home. However, there are disadvantages to short sales along with benefits.
Benefits of a short sale include:
- A short sale can avoid foreclosure. A foreclosure on your credit report can make it difficult to purchase another home, or you may have to wait longer to purchase a home.
- You should be able to remain in your home while negotiating a short sale with the mortgage lender. You are not making mortgage payments during this time, so you can save money to prepare to move to a new home.
- The lender may agree to forgive the deficiency amount as part of the short sale agreement. A deficiency is the amount you owe on the mortgage loan after your lender applies the short sale proceeds to the account.
- You can negotiate with the lender for the lender to pay closing costs as part of the short sale agreement.
Before beginning the negotiating process for a short sale in Massachusetts, you need to consider the potential disadvantages of a short sale agreement. Negative aspects of a short sale agreement include:
You Might Owe Taxes
You may owe income taxes on the amount forgiven by your lender. Your mortgage company reports the amount it forgives as part of the short sale agreement to the Internal Revenue Service. You may be required to include this amount as taxable income for the year.
You May Be Liable for the Deficiency
If the lender does not forgive the deficiency amount, you may be responsible for paying that amount after the short sale. It is possible your lender may require you to sign a Reaffirmation Agreement for the deficiency amount. If so, the Reaffirmation Agreement becomes a legally binding contract. The mortgage company could pursue collection efforts if you fail to pay according to the agreement.
When your mortgage is foreclosed through a Trustee’s Sale, Massachusetts foreclosure laws discharge the deficiency. However, if you have a second mortgage, the debt would not be discharged through the foreclosure sale or the short sale.
You Receive Nothing for the Sale
In short sales, lenders almost always require the entire proceeds from the short sale to be paid to the lender. You are not permitted to receive any proceeds for selling your home.
Negative Impact on Your Credit Score
Even though a short sale might not have the same impact on your credit score as a foreclosure, it can still impact your credit rating. It might be more difficult to obtain credit, rent a home, or do other business impacted by your credit score.
Your Lender Is in Control
You cannot proceed with a short sale without your lender’s approval. Therefore, the mortgage company may refuse to accept a short sale agreement, leaving you fewer options to deal with a mortgage loan you cannot repay.
Negotiating a Short Sale in Massachusetts
Our Massachusetts short sale attorneys at Logan A. Weinkauf, P.C. have extensive experience negotiating short sales with mortgage lenders. Obtaining approval for a short sale can be a complicated process.
The process typically begins by contacting the mortgage company’s Loss Mitigation Department. The department handles applications for short sales. The requirements for and process of obtaining a short sale may differ slightly by lender. Our attorneys handle all matters required to prepare Financial and Hardship Packages to submit with the request for a short sale.
Generally, lenders require a hardship letter explaining why your current financial condition prevents you from repaying your mortgage loan. Reasons that might qualify as a financial hardship for a short sale include, but are not limited to:
- Natural disasters
- Death of a family member
- Job loss
- Divorce or legal separation
- Serious illness, accident, or disability
The financial hardship must be something beyond the borrower’s control. In other words, you made a good-faith effort to keep up with your mortgage payments, but circumstances prevent you from making future loan payments.
Our legal team works with you to obtain evidence of your financial hardship, such as copies of your tax returns, W2 statements, medical records, most recent pay stubs, etc. We also gather the other required documents for a short sale. The mortgage lender may require a current property assessment, appraisal, or other proof of the home’s current market value. The lender may also require a signed Sales Contract contingent upon obtaining lender approval for a short sale.
A mortgage lender may reject a short sale. Our attorneys attempt to negotiate an amount the lender will accept for a short sale. Then, we must negotiate with the purchase to increase the purchase price to cover the short sale.
We Protect Your Best Interests During Short Sales in Massachusetts
A short sale may be in your best interest. However, it could depend on the terms negotiated with your mortgage lender. Our Massachusetts short sale attorneys negotiate terms that are in your best interest, including payment of fees and deficiency forgiveness.
If a short sale is not in your best interest or your mortgage lender denies the short sale agreement, our Massachusetts bankruptcy lawyers discuss other debt-relief options that can avoid foreclosure.
A Chapter 7 bankruptcy allows you to surrender your home in full satisfaction of your mortgage. You would not owe a deficiency amount or pay taxes on the discharged amount. Furthermore, bankruptcy would discharge a second mortgage and other liens on the home without costing you any money.
Contact Logan A. Weinkauf, P.C., to schedule a free consultation to discuss short sales and other debt-relief options to avoid foreclosure in Massachusetts.