Nobody wants to be forced into getting rid of their home. Unfortunately, if you’re struggling to make your monthly mortgage payment, you may find yourself asking whether you should consider a short sale or foreclosure. It’s a good question–and not one you should take lightly. Our Florida real estate attorney is here to help you understand your options—whether it’s a short sale or foreclosure—so you can make the best decision and move forward with more confidence and a little less stress.
What Is a Short Sale?
A short sale is a remedy available to some homeowners if they owe more on their homes than the property is worth and are unable to continue making payments. Basically, the homeowner sells their house for less than what they still owe on the mortgage, and the lender forgives the remainder. A short sale can impact your credit a bit, but it does less damage than a foreclosure.
What Is a Foreclosure?
A foreclosure is a legal proceeding that happens when the bank or lender forces the sale of a house to cover the debt owed. This can happen if you can’t keep up with your mortgage payments. The mortgage company must get approval from the court to start the process, but once the foreclosure process starts, the lender tries to sell the house to recover what’s still owed on the loan.
Unfortunately, foreclosure hits your credit pretty hard and can stay on your record for years, making it tougher to buy a home again in the near future. Sometimes, though, it’s the only option if your mortgage becomes unmanageable. What’s even worse though, is that often you may still owe money on the home even after the foreclosure.
Short Sales vs. Foreclosure
Both short sales and foreclosures have their own benefits and drawbacks, and it’s important for homeowners to weigh these carefully before making a decision.
Pros of Short Sales:
When deciding between short sales and foreclosures, understanding the specific advantages each option offers can help homeowners make the best choice for their financial future. Some pros are:
- Reduced Credit Damage: Short sales typically hurt your credit score less than a foreclosure.
- Potential to Buy Again Sooner: After a short sale, you might be eligible to purchase another home sooner than after a foreclosure.
- More Control Over the Process: In a short sale, you have more input into the sale of your home, unlike a foreclosure where the bank takes over.
Short sales can provide a viable alternative for homeowners who want to minimize financial setbacks and maintain some say in the property’s sale.
Cons of Short Sales:
While there are clear benefits to both short sales and foreclosures, each option also comes with certain drawbacks that homeowners should consider carefully. Some cons are:
- Time-Intensive: Short sales can take months to finalize, often dragging out the process.
- Possible Tax Implications: Any forgiven debt from a short sale could be taxed as income.
Despite these drawbacks, short sales may be a good choice for those willing to invest the time to reduce credit damage and gain potential tax relief.
Pros of Foreclosure:
For some homeowners, foreclosure may offer a more straightforward solution, with certain advantages that could make it a preferable choice over a short sale. These include:
- Faster Process: Foreclosures typically resolve quicker than short sales, giving homeowners a faster way out.
- No Tax Burden: In most cases, foreclosures don’t come with the tax consequences that short sales might have.
For homeowners seeking a fast resolution with limited tax concerns, foreclosure might offer a more direct path.
Cons of Foreclosure:
Despite its advantages, foreclosure also has significant drawbacks that can impact homeowners’ financial stability and future borrowing ability. These can include:
- Major Credit Hit: Foreclosure can severely damage your credit score, making it harder to get loans in the future.
- Lack of Control: With foreclosure, the bank repossesses and sells the property, leaving you with little say in the process.
It’s important to note that when a property is sold for less than the remaining balance on the mortgage, whether through a short sale or foreclosure, the difference is known as a deficiency. Homeowners facing foreclosure in Florida should be aware that lenders have the legal right to file a lawsuit to recover these losses from the borrower. This legal action is called a deficiency judgment.
Which Option Is Best for You?
At the end of the day, the best option depends on your personal situation. If you want to have a say in the process and minimize the long-term damage to your credit, a short sale might be the better route. On the other hand, if you just need a quick exit and are prepared for the financial fallout, foreclosure may be the only option left.
Consider what’s most important to you and make the decision that feels right for you and your family. If you need help deciding, consider consulting with an experienced Florida real estate lawyer today.