Should You Do a Short Sale or Let Your House Go into Foreclosure?

If you are behind in your payments where you can not make up payments on your house, you need to make a serious decision. Should you try to save your home, sell it or abandon it?

The first choice is to contact your lender and ask about a repayment plan. Under this choice, borrowers typically repay the mortgage arrears over a few months in addition to making their regularly scheduled mortgage payments.

If you don't have that extra money to make-up the arrearage, you may get your lender to agree to a loan modification, or forbearance. In both cases, you will make the same payments but will change the term of the loan to add the months required to make up the deficit.

If none of these plans can be accomplished, you have to either abandon the house where the lender will commence foreclosure proceedings or sell it before the foreclosure is approved by the court.

A short sale is essentially selling the house for less than what you owe on the property, and the lender will agree to accept that amount as payment in full of the mortgage debt.

A short sale is far from ideal, but it has the following benefits:

· Avoid foreclosure which is a public filing where anyone can see your financial situation.

· Negate having "Foreclosure" added to on one's credit report

· Avoid having the lender file a deficiency judgment where the lender will continue to collect the deficient amount that you borrowed and did not recoup from the sale of the house.

· Avoid bankruptcy.

· If the owner is insolvent, or with the Mortgage Cancellation Relief Act 2007, the forgiveness of debt will not be considered a taxable event for the homeowner.

A short sale is not an easy process and requires one to follow the exact instructions in the lender's package. The basic requirements for a short sale are a sales contract from a ready willing and able buyer, a hardship letter from the seller explaining why they cannot continue to pay the mortgage and supporting documents such as tax returns, bank statements, information and photos of the home and the comparative home prices supporting the offer. The success of the short sale will depend on how compelling the short sale package is that they submit to the lender(s).

It is important to have an attorney experienced in short sales handle the short sale. They are in the best position to negotiate acceptable terms to the lender.

An attorney should provide an appraisal as well as estimates on repairs needed to the house. These are two of the biggest factors in convincing the lender that the house should be accepted for the lower price. The lender will use their own appraiser to see if they are in agreement.

The foreclosure process will continue during the short sale application. It may be where the judgment of foreclosure is going to happen before getting the short sale completed. Your attorney would be able to advise you on the best strategies.

Know your legal rights and consumer rights before making any commitments.