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When you are having a hard time paying your bills for any reason and it looks like you are going to miss a mortgage payment there are several ways to handle that situation. Two options are a short sale or a foreclosure, and sadly both options entail you moving out of your home permanently. The first step to take is to consult a Massachusetts bankruptcy attorney for a thorough understanding of your options.
Understanding the Basics: Short Sales vs. Foreclosure in Real Estate
According to the Consumer Financial Protection Bureau, a short sale is defined as selling a home for less money than what is owed on the mortgage. Best case scenario: you sell your home quickly and use the proceeds to pay your lender, at the same time getting a waiver of deficiency from the lender. If you don’t get a waiver, the state of Massachusetts has two years to go to court and get a deficiency judgment. Then they can take up to twenty years to collect it.
In a foreclosure, the bank seizes control of your home and sells it to cover the outstanding mortgage balance.
The Advantages and Disadvantages of Short Sales
As with all difficult financial options, there are pros and cons. The advantages of a short sale are:
- You control the process of selling the house and when you move out
- You don’t go through the public embarrassment of a foreclosure
- It will have less of an impact on your credit rating than a foreclosure
Unfortunately, there are some disadvantages to a short sale too:
- You need to ask the lender to forgive the amount that you can’t pay back even with a sale, and that can be a lengthy process – which must occur before you can list the home for sale
- You are much more likely to get far less than your home is worth
- Even if you get the short sale done and the lender waives the deficiency on what you owe, you will likely have a more difficult time purchasing a new home. Your credit can be affected.
A short sale will have an effect on your credit rating and may make it harder to purchase a new home.
The Pros and Cons of Foreclosure
If you can’t get the bank or lender to agree to a short sale you may have no choice but to go through the process of a foreclosure. In Massachusetts, the bank can simply send you a foreclosure notice and hold an auction of your home. That will have a devastating effect on your credit score. You may find it very embarrassing.
There is only one real “pro” when it comes to foreclosure. You usually have time to bring your payments current. The bank has to give you notice, and they have to publish notice of the auction in the newspaper for three consecutive weeks. If you can secure another job or borrow the money from a family member you may be able to avoid foreclosure.
Why Consulting an MA Bankruptcy Attorney Can Inform Your Real Estate Decisions
An experienced attorney will advocate for you and be an intermediary between you and the lender. They may be able to negotiate a deal so that you can stay in your home. Contact us today and we will sit down and go over your options.