Life happens – and sometimes the financial twists and turns you experience are wholly unexpected. If you find yourself suddenly unable to pay your mortgage, you may be contemplating a short sale to get out from under the bill.
A short sale is when a property is sold for less than the current mortgage. Done with the willing participation of the bank, a short sale can allow you to avoid foreclosure and eviction – allowing you to remain in the home until the sale is complete. It is often allowed by the mortgage holder when property rates have dipped in a certain area or the buyer is “underwater” on their loan because they paid more than the home was worth.
While short sales can offer significant financial relief, there are some risks with the process. These include:
It’s a lengthy, stressful process
Short sales can be complicated, so they can take several months to complete. Buyers are often “sale hunting,” but they may be unprepared to stick around for the extensive process that they have to go through to get a lender to sign off on the deal. That can sometimes make it harder to find a buyer, adding to your stress.
You could be subject to a deficiency judgment
Even though you get the mortgage lender’s approval for a short sale, that does not mean you will be off the hook for the full mortgage. The lender has 90 days after the short sale to take action to recover a deficiency judgment against you for the difference between the home’s sale price to the new owner and your old mortgage. That could leave you with a hefty bill that you could be paying on for years.
It will still affect your credit
While less damaging than a foreclosure, a short sale does damage your credit score. It can take a while for your credit to recover, and it may take a couple of years (or longer, depending upon your situation) to qualify for a new mortgage.
With these issues in mind, it is wise to seek legal guidance so that you can protect yourself moving forward. That is also the best way to explore whether this option is better for you than other forms of debt relief.
