Short Sales and Alternatives to Foreclosure

In today’s tough economy, many have suffered hardships,  job loss, divorce or unexpected illness that has left them unable to afford their homes. The government, along with many lenders, has come up with different programs to help homeowners avoid the lengthy and stressful process of foreclosure.

As a homeowner, the first step should be to contact your mortgage company and explore the option of loan modification. However, if the borrower does not qualify for loan modification, or has decided not to accept the lenders offer, a short sale may be the best option.

Homeowners should explore different types of short sales before pursuing the process, including conventional and government sponsored programs.

HAFA, program created by the Federal Government, offers home owners a way to transition out of their mortgages and into more affordable housing.

What is the Home Affordable Foreclosure Alternatives Program?

HAFA offers two options to those who qualify. The first option, a short sale, is an arraignment worked out with your lender to sell your home for less than the balance of the loan(s). There are steps that need to be taken before pursuing a short sale. Contact a real estate professional to figure out the true value of your property. A market analysis will need to be done on the property. Additional cost will need to be taken into consideration such as closing cost, title company expenses, appraisal fees, attorney’s fees, agent commissions, unpaid taxes, etc. The lender will also need to know the total amount of all loans against the property. If the total amount is less than the property’s market value, then a short sale is a possibility.

If the qualifications for the HAFA program are met your loan will be paid in full, and the borrower will no longer be responsible for the debt that falls short of what is still owed on the property. In addition, HAFA offers $3000 in relocation assistance.
While a conventional short sale is a better alternative than foreclosure, it does not necessarily release the borrower from their obligation to repay the balance of the loan. That must be specifically agreed upon between both parties. It does, however, mitigate additional fees and cost to both the creditor and borrower.

While both will have a negative effect on your credit score, HAFA offers less of a negative effect and relocation assistance. A conventional short sale offers less of a negative effect than foreclosure.

In either case, the borrower will be asked to provide the mortgage company with a hardship letter and financial documents, including, but not limited to, pay stubs, tax returns, monthly expenses and income.

The second option is a Deed In Lieu of Foreclosure. Simply put, a Deed in Lieu allows the homeowner to give the title of your property back to the lender, transferring ownership back to them.