A short sale mortgage is selling your home for a lesser value or balance that is remained on the mortgage as compared to what it originally was. Usually, you will be able to pay off the entire mortgage with whatever cash you receive from the sale. A short sale mortgage is particularly needed when you are unable to refinance your mortgage, if you are behind your mortgage payments, if you owe more than your home is and if you have possible financial hardships.
A short sale mortgage comes as a pre-foreclosure “savior”; it allows you to try selling your home before it gets foreclosed. A short sale mortgage serves as a savior by lowering fees for the borrower and creditor. When you decide to do a short sale mortgage, you and your realtor must put up the home for sale, and then wait for an offer to be received. The downside to a short sale mortgage is the effect it has on your credit score. Your credit score drops between 50 to 130 points. However, you can build back your credit score over a period of time.
A foreclosure mortgage, on the other hand, is when the homeowner fails to make mortgage payments consistently over a period of time. The lender automatically takes ownership of the home and evicts owner, then puts the house up for sale. Not only will borrower lose the home, but also it affects their credit score badly. Foreclosure is the final straw, and you will not be able to negotiate at that point. Unfortunately, a property is usually used as a collateral in the event the mortgage is not paid. Therefore, it is a legal and outright ownership for the lender.
Foreclosed homes will be put up for traditional sale or judicial sale.
Though it sounds harsh that the lender will take ownership of the home if a mortgage is not rendered in three to six months, they do not take the house without giving notifications. The lender is likely to send notices in the mail to inform the homeowner and gives them time to pay or settle the balance. However, if nothing is done after six months, the home will be put up for sale. The main problem with foreclosure is that the home is sold “AS IS”. It can be very expensive to fix a foreclosed home “AS IS” only because there may be many repairs needed.
Moreover, foreclosed homes that are sold at an auction requires the buyer to pay within 24 hours, therefore, does not give the buyer the opportunity to inspect the home for any problems. By making that payment commitment within 24 hours, the buyer is at risk of what he may expect when he finally sees the foreclosed home. The other major problem is the fact that redemption laws give right to the borrower to reclaim their property even after a new buyer has bought the home.
It is important to keep up with your mortgage to prevent some of these headaches. If you had a limited choice, a short sale mortgage would be of a lesser evil.