How to Avoid Foreclosure with Short Sales

If your adjustable rate mortgage has recently reset and your monthly payments have gone so high you can't afford them, you may find yourself desperately trying to hang on to a property that's no longer worth what you paid for it. So, if want to avoid foreclosure, what's next? The answer is a short sale. To learn how to avoid foreclosure with short sales and the answer to some commonly asked questions, keep reading.

What are short sales?

Short sales are a deal between the lender and the borrower to sell the property for less than the amount that is owed on the mortgage. Essentially, the lender accepts less than the total debt to avoid foreclosure processing and expenses.

What are the benefits of a short sale?

For the borrower, or homeowner, these deals mean they can avoid foreclosure with short sales, meaning they can sidestep irreparable damage to their credit report. According to the National Short Sale Center, a foreclosure can stay on your credit history for as long as 10 years, making it difficult to purchase a new home or obtain credit.

Does that mean a short sale won't affect my credit rating?

While you can avoid foreclosure with short sales and significant credit score damage, the use of a short sale can still affect your credit score by about 75 to 100 points. So, even though they're not as devastating as a full foreclosure, you will still feel the repercussions for a number of years.

Why do lenders agree to short sales?

Lenders agree to short sales mostly because they want to avoid foreclosure too. Foreclosures are expensive and time-consuming processes that involve lawyers, taxes, uncollected interest payments, accumulating bad debt and a generally overwhelming administrative process that most lenders simply don't want to deal with. It's actually less expensive for them to agree to a short sale then fight through a foreclosure process.

What are the conditions of a short sale?

You can avoid foreclosure with short sales as long as you meet several conditions. The first is that you must not be able to make your current mortgage payments. The second is that the property must be valued at less than the total amount borrowed. You won't make a profit on a short sale and you will most likely lose a lot of money, but you will avoid foreclosure.

Will every lender agree to a short sale?

Not every lender is going to agree to a short sale, some will require additional payments to settle the debt while others may outright refuse. Typically though, if you meet the conditions outlined above, you can avoid foreclosure with short sales.