A Better Alternative to Foreclosure and Bankruptcy
While sifting through my email this morning, I noticed a desperate email with a subject “I’m About To Lose My Home.” It’s from close friend Jim.
I furrowed my forehead. Was it two or three years ago that my wife and I visited Jim’s house in Clyde Hill? His beautiful home has a generous privacy landscaping and flat backyard space. And what I love most of its location is that it gives a spectacular view of Lake Washington.
I started reading his email. He said that his company just merged with another company and he was one of the unfortunate employees who was chosen to be laid off. His wife also got stricken with multiple sclerosis and has been going in and out of the hospital. They are already several months behind their mortgage payments. He asked if there is a way to avoid foreclosure since he does not want his credit score to be affected.
Popular Options Are Usually Not the Best Options
People who have fallen into hard times like my friend Jim would usually think of foreclosing their homes or declaring bankruptcy. But neither of them are good if you want to avoid staining your credit reputation: a foreclosure remains on your credit report for seven years, while a bankruptcy will remain for 10 years. It can definitely delay your chance of getting back on your feet!
So what option is left for me, Jeff?
Before I answer your question, read the three questions below and answer them truthfully:
- Are you behind on your mortgage payments?
- Do you have assets (properties, cars, cash, etc.) that you can use to catch up with your mortgage?
- Is your property below the market value?
If you answered yes to the first and third questions and no to the second question, then I finally have an answer for you.
Your best option is to sell your home through a SHORT SALE.
In real estate, a short sale is done when the owner of the house is in dire financial distress and wants to sell the property for less than the amount on the mortgage.
A Short Sale is Not a DIY Option
If you were able to convince the lender to agree to a short sale, there are three experts that you have to consult during the sale process.
- An attorney
- A tax professional
- A real estate agent
But I’m already in a bad situation. Why do I have to spend more money for them?
If you will do the short sale transaction by yourself, you will be in bigger financial trouble.
If the lender sees that you still have cash assets, you might be required to continue paying the mortgage payments or to cover the difference between the sales price and the mortgage payment. Hiring an attorney who is an expert in handling short sales can help you navigate this tricky part of the short sale process.
Do you want to avoid paying taxes? Then seek the help of a tax professional. Normally, the IRS treat forgiven debt as a taxable income by the seller. The tax professional knows the intricacies of the tax law and can help you save money.
Generally, selling a property through a short sale is laborious and takes more time because of the inherent complexities. For this reason, an experienced real estate agent who is knowledgeable in short sales is needed to hasten the process.
Our homes usually take the hardest hit when we fall into financial troubles. But it doesn’t mean that we can let go if our homes and feel like a loser. We can opt for a short sale to somehow ease our burden and make us think that our homes have served its true purpose in our lives.