Is the Short Sale Option an Option?

My first post addressed the first type of upside down seller.  So what is the second type of upside down seller? The seller who is experiencing financial and personal hardships. The seller who can no longer pay the mortgage because they have lost their job and have no more savings in the bank. This seller may even be in default and foreclosure proceedings started. This is the seller who has to sell or face losing the home to foreclosure.

 Some possible solutions could be that the homeowner gives the lender a "deed in lieu of foreclosure". If this is an option with the lender, you save the bank the expense of filing a foreclosure complaint against you and maybe saving some credit points.  Another option is to let the home go through foreclosure. Why not, it's not like you are getting any equity (money) out of it. In New Jersey, if your lender goes through with the foreclosure process (or if you give a deed in lieu of foreclosure) the lender can obtain a "deficiency judgment" against you for the difference in the fair market value of the property and the amount of monies received (with the amount received being less than what is owed).  A deficiency judgment can show up for 20 years on a credit search.  If you ever want to own a home in the future, this type of judgment will prevent you from qualifying for a mortgage. It would have to be paid and removed as a judgment against you as a condition to be approved for a mortgage.

I believe the best possible solution is to sell the home through the "short sale" process. Does the seller walk away with money? No. Does your credit take a hit? Yes (about 200 points). So what are the advantages of a "short sale"? The advantages include not having a foreclosure on your credit report (much more than a 200 point hit) and having the control (and maybe dignity) of leaving the home on the your own terms and not having the local sheriff escorting you and your family to the curb. The biggest advantage though is possibly walking away without owing the bank the difference between the short sale price and the mortgage balance not covered by the sale. That is a HUGE advantage. A short sale could give you the opportunity to not have a deficiency judgment recorded against you.  This is not guaranteed, because it will depend on the lender and your circumstances, but in this current environment, it is not impossible to obtain.

Going over what I just wrote, it struck me that referring to "possible solutions" sounds too nice. It's not like the homeowner is deciding whether to paint or wallpaper. All of these "possible solutions" are terrifying and unfortunate. It is not a position someone desires to achieve. At a time when homeowners are considering these different possibilities, it is usually a time filled with much worry and fear. Families and marriages are being torn apart!

If you are a homeowner in this situation, please do not go it alone! It is imperative that you seek legal and tax advice.  It is also important that you  work with a  professional, trained Realtor who can guide you in the ''short sale" process. The seller has a lot of responsibility in getting a "short sale" approved and it is alot of work, but working with a knowledgable Realtor who can offer you assistance and guidance is paramount.