Most homeowners try to avoid foreclosure and the financial damage a foreclosure can cause by seeking out ways to work with the mortgage lender. Once a mortgage lender forecloses on a loan owed by a homeowner, the foreclosure is noted on the person’s credit history for a period of seven years. This negative notation can affect a person’s ability to secure loans or credit accounts for a number of years. This is why other options, such as a short sale, are preferable to going through a foreclosure.
A short sale occurs when a mortgaged property is sold for less than the mortgage loan owed on the property. Short sales do not usually occur without the approval of the mortgage lender. Therefore, homeowners who wish to get out from under an underwater mortgage loan need to negotiate with their mortgage lenders. Underwater mortgage loans occur when the home is worth less than the amount owed on the loan.
How the negotiation and discussions with the mortgage lender are handled can make a difference in whether or not the homeowner going through a short sale gets to be completely free from the mortgage debt after the short sale is completed. In Michigan, after the short sale, the mortgage lender can seek the balance between the amount of the short sale and the amount owed on the loan. This balance is called a deficiency. The mortgage lender can sue the homeowner to get this deficiency.
In negotiating the terms of a short sale with the mortgage lender, it is important to make sure that the mortgage lender waives all deficiencies, or agrees to settle the deficiency for a reduced amount. If the mortgage lender agrees to waive the deficiency, once the short sale is completed and the money from the sale is applied to the loan, the homeowner is released from the loan obligation.
Short sales are also noted on credit reports and can affect a person’s credit history; however, short sales are reported as settled or negotiated loans, and the notation does not raise the same negative inference as a foreclosure notation. In addition, it is possible for a person who has goes through with a short sale to apply for another mortgage loan soon after the short sale. This is not possible with people who go through foreclosure, who often have to wait years before they can qualify for another mortgage loan.
If you are contemplating a short sale, it is important to keep up with the mortgage payments as much as you financially can. Missing payments can affect the way the short sale is reflected on your credit history, as well as affect the lender’s willingness to negotiate with you.
Let Us Help You
If you are a homeowner and struggling with an underwater mortgage, you may be able to avoid foreclosure by going through with a short sale. Before approaching your mortgage lender and start negotiating for approval to go through with a short sale, call us at Resnick Law, P.C., in Bloomfield Hills and Detroit, Michigan. Our experienced attorneys can help you navigate the process and ultimately reach a favorable end to your mortgage problems.
(image courtesy of Matt Jones)