Foreclosure Vs Short Sale
Print View - Published: Tue, 18 Jan 2011 at 8:32 PM
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If you're struggling to meet the payments on your home, have fallen into delinquency and you can see no light at the end of the tunnel then you may have to concede to losing your home. While this is likely to be an unpleasant experience to any person, it is best to make things go as smoothly as possible by weighing up your choices and making the best possible decisions.
One thing that any individual should not do is commit a strategic foreclosure. A strategic foreclosure is basically a situation when although the house owner is able to afford repayment of their loan, they still decide to walk away from the home since the value of the loan is greater than that of the property. This is considered a highly unethical practice and something that's greatly looked down upon by the government and lenders. Committing a strategic closure would possibly leave the individual unable to ever be accepted for a mortgage again.
If it's a case of a person merely not being able to fulfill their financial commitments, then foreclosure is not considered to be an unethical practice. An individual may have just lost an income through no fault of their own, for example, leaving them in need of the money that is needed to repay their loan. Although financial institutions do settle for this as a thing that simply can't be helped, sometimes, there are still penalties incurred in order to help safeguard the market from exposure to toxic loans in the future. A person who has undergone foreclosure in this manner won't be able to purchase a new home for five to seven years, depending on the circumstances.
Another choice available to the people who are struggling financially is to sell their home in order to settle the debt. However, with a struggling economy, many would find that the valuation placed on their house will not completely settle the loan and there will still be a balance remaining. Negotiating with the lender might make them agree to a short sale, which essentially means that they would settle for a lesser amount for the home that will leave them making a loss. By doing this, the bank could limit their losses where taking some loss is inevitable, and it even means that they don't have another empty property on their list. The banks are somewhat easier on house owners who take this alternative since a compromise is madeGiven that a compromise is made, the banks are somewhat easier on homeowners who go for this alternative. Individuals who do short sale their house might even be able to purchase a new house right away. It is more common, however, that they have to wait for 2 years before purchasing again but then people who have fallen on enough hardship to lose their homes in the first place are unlikely to be in a hurry to buy again anyway.
If you do find yourself in a position where you're just not able to keep your house, and for which ever reason, it would appear as though a short sale is the most effective alternative if the lender would settle for it. Whereas foreclosure leaves the person harder hit but still with a chance to start again at some point in the future. If you do find yourself in such a tight situation, then be sure to speak with your lender to find the best possible solution to your problem.
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