Should you go for a Short Sale or Short Payoff?

by Penny Cooper on April 26, 2012

When you are not in a position to pay off the outstanding on your mortgage loan and your lender is beginning to hint at foreclosure, it is time to start exploring options that will help avoid this extreme step. If you have a trusted Florida foreclosure attorney this is the time to go to her for advice. Many financially distressed homeowners decide to opt for a short sale in a bid to keep the foreclosure devil away from their doorstep. But is this the right option? What about short sale? Is this the better option? Read on to get the answers to all these questions.

Exactly What is a Short Sale?
Like the name suggests, the short sale is a deal wherein your home is sold for an amount that is less than what you actually owe your lender on it. Since he is willing to absorb the shortfall between the actual amount owed and the sale price, the term ‘short sale’ is used to describe this kind of deal.

The actual sale of the house is the home owner’s responsibility. It is up to you, the owner of the property, to market the home and sell it. You may use the services of a real estate agent to locate the best deals in your neighborhood although this is likely to cost you some in terms of agent fees/ commission etc.

A number of ‘underwater’ home owners opt for a short sale in today’s poor housing situation because it is actually the lender who bears the loss in the entire transaction. You can find a buyer with relative ease because of the lower price of the house. Once the deal is done, you get out of an unmanageable loan that had the potential to result in a foreclosure.

The downside of the short sale is that  you are left without a home and also that your credit report is dramatically and adversely impacted by this deal. In fact, there is a waiting period following a short sale before you can apply for FHA loans or government backed loans.

Is a Short Payoff a Better Option?

Although the short payoff comes with its own restrictions, your Floridaforeclosure attorney will point out the undamaged credit rating as a great plus. For the short payoff, the homeowner sells the home at the current market rates and promises to make good the lender’s ‘loss’ by means of a promissory note. The short payoff may be one of the first ‘how to stop foreclosure’ suggestions made by your attorney.

A homeowner who has good credit so far and who can prove his ability to pay off the promissory note can often negotiate this kind of deal with his lender. For the lender, the deal is a good one because he gets to recover all or most of his original loan, only maybe a bit later than he expected.

For you, the homeowner, you still lose the roof over your head but since your credit report is not damaged, you do not lose your ability to buy another home as soon as your finances stabilize. When you do decide to buy a second new home, you will get mortgage loans at attractive rates because your credit rating is unblemished. In effect, the short payoff is the better ‘how to stop foreclosure’ solution to get rid of a monumental mortgage debt.

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