In a good economy homeowners and borrowers facing foreclosure can often sell their property to prevent the foreclosure. However, in an economy as bad as the current one, many borrowers find themselves with upside down mortgages. That means their property has a current market value lower than what they owe on the mortgage. Even if they sell the property, they still cannot afford to pay off the mortgage with the proceeds from the sale.
That dilemma also puts lenders in a difficult position. Even if a bank or mortgage company forecloses on the property, it cannot itself retrieve everything invested. Because many consumers have responded to the current market by choosing strategic foreclosures, like a business abandoning a bad investment, some lenders have become more amenable to short sales.
In a short sale, the lender and borrower agree to sell the property for less than the amount due on the mortgage. While the borrower selling the property gains no equity, many times the borrower is excused from the obligation of the paying the short sale, as could happen if a judgment of foreclosure was the result. While the lender does not receive their full investment, they do at least get something. Both parties avoid the expense of court proceedings attendant foreclosure action and/or judgment.
Borrowers and sellers seeking a short sale need to get a commitment from their lender that they will accept a short sale. Without this they could sell the property believing all is done and still find themselves owing money on the property. A third party with concerns in short sales are the buyers. Purchasing property up for short sale can be a good investment, but it is a good idea to review the entire market before just buying arbitrarily. It could be that no amount of economic recovery would increase the market value of a particular property.
Connecticut residents have an option to help with this. The State Judicial Branch sponsors a Foreclosure Mediation Program. Homeowners sued in foreclosure desiring a short sale might consider using this program to effectuate negotiations. For any person facing the possibility of foreclosure, however, it is important to speak with an experienced attorney to discuss your options.
