When Should You Consider a Short Sale If You Are in Financial Trouble?

 Posted on June 18, 2024 in Bankruptcy

Financial hardships can strike unexpectedly, leaving homeowners struggling to keep up with their mortgage payments. When faced with foreclosure, many homeowners consider alternative options, such as short sales. While short sales can be a viable solution for some homeowners, it is important to understand when this option is most appropriate. A Texas lawyer can help you determine if this is the best route for you.

What are Short Sales?

When homeowners sell their property for less than their mortgage balance, it is called a short sale, and the lender accepts the proceeds as full payment. In a short sale, the lender essentially forgives the remaining debt, allowing the homeowner to avoid foreclosure and its negative consequences. Remember that in certain cases, a lender may require you to pay the remaining balance after a short sale, which is typically the difference between the sale price and the initial loan amount.

During the short sale process, homeowners usually need to prove financial hardship and an inability to keep up with mortgage payments. The lender understands that a short sale is better than foreclosure, so they agree to accept less than the full mortgage amount. Although a short sale hurts the homeowner's credit score, it is usually less severe than a foreclosure.

When to Consider a Short Sale

Nobody should rush into a short sale. Sometimes, there may be an option you did not know of that could help you more efficiently. However, there are certain times you may not have any other way out of your situation.

Financial Hardship

Suppose you are experiencing a significant financial hardship, such as a job loss, medical emergency, or divorce, and cannot keep up with your mortgage payments. In that case, a short sale may be a viable option. By selling your home through a short sale, you can avoid the long-term damage to your credit that a foreclosure would cause.

Underwater Mortgage

When your home's value has declined, and you owe more on your mortgage than your home is worth, you are said to have an underwater mortgage. In this situation, a short sale can help you get out of under the burden of an unaffordable mortgage payment and avoid the negative equity resulting from foreclosure.

Relocation

If you need to relocate for work or personal reasons and cannot afford to continue paying your mortgage, a short sale may be a good solution. You can move on without the added stress of a looming foreclosure by selling your home through a short sale.

Considerations Before Pursuing a Short Sale

While a short sale can be a helpful tool for homeowners in financial distress, it is not the right choice for everyone. Before deciding to pursue a short sale, consider the following:

• Impact on Credit: Although a short sale is less damaging to your credit than a foreclosure, it will still have a negative effect on your credit score.

• Eligibility: Not all homeowners qualify for a short sale. Lenders typically require proof of financial hardship and may have other requirements that must be met.

• Tax Implications: In some cases, the forgiven debt from a short sale may be treated as taxable income. Consult with a tax professional to understand the potential tax consequences of a short sale.

• Time and Effort: The short sale process can be lengthy and complicated, requiring significant time and effort on the homeowner's part.

Contact a Schertz, TX Bankruptcy Lawyer

If you are considering a short sale, seek the guidance of an experienced real estate attorney. A knowledgeable Boerne, TX bankruptcy attorney can help you with the legalities of the short sale process, ensure that your rights are protected, and advise you on the best course of action for your specific situation. Schedule your free, no-obligation consultation with Law Offices of Chance M. McGhee at 210-342-3400.