If you cannot afford to make your mortgage payments, even under a modified mortgage plan, you may face the prospect of losing your home to a short sale or foreclosure. But which path should Florida homeowners pursue when they run out of other options?
What Is a Short Sale?
A short sale refers to a home sale where the homeowner sells their property for less than they owe on the remaining balance of the mortgage on the property. In most cases, homeowners must receive the mortgage lender’s approval to conduct a short sale. A homeowner might consider a short sale if they cannot afford their mortgage payments in the long term, but they can afford to pay the difference remaining on their mortgage balance after the short sale, or they work out a repayment plan with the bank to pay off the remaining mortgage balance. Parties may agree to short sales for underwater properties (properties worth less than the mortgage owed), as the bank might have no other realistic prospect of making at least a partial recovery of the money owed.
What Is Foreclosure?
In foreclosure, a mortgage lender legally seizes a property that secures a mortgage and sells it at a public auction after the property owner defaults on their mortgage payments. Foreclosure requires a court judgment ordering the property’s sale, requiring a mortgage lender to file a lawsuit against a homeowner who has defaulted on their mortgage and prove to the court that the homeowner defaulted and the lender seeking foreclosure has the legal right to it (i.e., possession of the note, mortgage, or an assignment of the mortgage).
When a property is sold at foreclosure, the homeowner loses ownership of and the right to occupy the property. A third party may purchase the home at a foreclosure sale, or the mortgage lender may make a bid up to the amount owed on the mortgage. When the bank has the winning bid for less than the amount owed on the mortgage, the lender may have the right to pursue the balance of the mortgage from the homeowner through a deficiency judgment.
Key Differences Between Short Sales and Foreclosures
Some of the primary differences between short sales and foreclosures include:
- Control – A homeowner initiates and maintains control over the short sale process, subject to the mortgage lender’s approval, whereas the lender initiates a foreclosure, subject to the court’s approval.
- Timeline – A short sale can have a completely flexible timeline, as securing a buyer and completing the sale represents the primary factor in determining how long a short sale can take. Conversely, a foreclosure follows a defined timeline for notice of foreclosure and court proceedings, although court litigation can prolong the process if a homeowner presents a viable defense against foreclosure.
- Process – A short sale involves a purely private process organized by the homeowner and the mortgage lender. Conversely, a foreclosure requires a court proceeding to obtain the court’s order authorizing the foreclosure sale.
- Impact on Credit – A short sale can noticeably affect a homeowner’s credit score, potentially dropping it by 100 points or more, depending on the homeowner’s score before the short sale. Conversely, foreclosures typically have more damaging effects on homeowners’ credit scores.
Which Options Should You Choose?
Pursuing a short sale or allowing foreclosure to happen may depend on various factors, such as:
- Whether you can secure a buyer for a short sale
- Whether you can obtain the lender’s approval for a short sale
- You need to minimize damage to your credit
- Whether you cannot reach an agreement with the lender to resolve a mortgage default
Contact Our Firm Today
When you face difficulties making your mortgage payments, you may have to go through a short sale or foreclosure. An experienced attorney can help you determine the best path based on your financial circumstances, needs, and goals. Contact the Law Offices of Jeffrey A. Herzog, P.A., today for a confidential consultation to discuss your options.