Category: Foreclosure

Short Sale vs. Deed in Lieu of Foreclosure

Not having enough money to pay your monthly mortgage is a common issue faced by millions of Americans. If you’re having trouble paying your monthly mortgage on time and your lender has denied a request for a loan modification plan or if the loan modification seems unmanageable, there are a few options to consider prior to foreclosure: a short sale (if the equity is underwater) or a deed in lieu of foreclosure.

If you can relate to this situation, you may not be not sure which path is right for you. In this article, we will go over the pros and cons of short sales and a deed in lieu of foreclosure. You can use these as an informal guide when considering your options. Before finalizing your choice, consult a real estate agent experienced with short sales and distressed properties. Agents experienced in these areas understand that these sales are about you, the homeowner, moreso than they are about the house itself.

What Is a Short Sale?

A short sale is when you attempt to sell your house for less than what you owe to the bank. For a short sale to take place, your lender must agree to allow it. There are requirements for the owner to complete a short sale since the lender wants to ensure everything is done to recoup any potential loss. Typically, homeowners are late on their payments before a lender to consider a short sale.

Upon the sale of your home, you may or may not owe money to the lender, depending on your situation. Short sales typically occur when property values have gone down significantly in the area, substantially affecting property value.

The Benefit of a Short Sale

The benefit of a short sale is that you are provided with an avenue to sell your house and “make good” with the bank. Essentially, the benefit of a short sale for the seller is that they can wash their hands and walk away from the situation. There is also an opportunity to request a waiver of the deficiency amount.

Does a Short Sale Affect My Credit?

Yes, a short sale will make a significant impact on your credit score. The higher your score before the short sale, the more significant the drop will be, up to -150 points. Each credit profile will be impacted differently.

What Is a Deed In Lieu of Foreclosure?

We know that foreclosure is not a fun option, so what exactly is a deed in lieu of foreclosure? Technically, a deed in lieu of a foreclosure is a document that transfers the title of the property from you to the bank in exchange for being relieved of your debt.

When struggling to make monthly payments, a homeowner may request a loan modification from their lender, which is a new agreement at lower monthly payment terms. However, if a loan modification is no longer an option, a deed in lieu of foreclosure might make sense.

The Benefit of a Deed in Lieu of a Foreclosure

The main benefit of a deed in lieu of foreclosure is how quickly a homeowner can wash their hands of a property they no longer want or can afford. If approved, the process is quick and efficient, and when it’s over and done.

Foreclosures can be incredibly time-consuming and costly by nature. The process is also public and out in the open. By contrast, a deed in lieu of foreclosure is a private transaction with your bank and you.

Reasons You Might Be Rejected for a Deed in Lieu

If your home has depreciated in value to the point that it is worth less than what you owe to the bank, your lender may only accept a deed in lieu of foreclosure if you can pay the difference.

If there are liens (HOA, condo, utilities, etc.) or tax judgment on the property, a lender will not agree to a deed in lieu. Also, there are some government-backed loans where the lender is only given a payout if the home goes to foreclosure. In this instance, your lender will not agree to a deed in lieu of foreclosure.

Reasons Why Your Lender May Be Interested

Rather than pay legal fees to undertake foreclosure proceedings, your lender might be happy to take control of your property and move on with business. In many cases, your lender will save both time and money by agreeing to a deed in lieu of foreclosure, rather than foreclosing on the property.

Does a Deed in Lieu of Foreclosure Affect My Credit?

A deed in lieu of foreclosure will have a negative affect on your credit. You may also owe taxes on your loan forgiveness if it totals more than $600.

What If I Have Multiple Mortgages?

It is still possible to partake in a short sale with multiple mortgages. But it is not an option for a deed in lieu of foreclosure.

Where do I look for help?

If you’re in a financial position that you aren’t sure how to manage, there are a couple of places to seek help. Ff you’re considering selling your home, talk with a team of agents experienced with helping sellers in distress. Atlas Home Group has over a decade of experience in this area. Please call us at 443- 660-8080 or visit our website to submit a consultation form on our website.

You can also call the Maryland HOPE hotline at 1-877-462-7555 to find a state-approved nonprofit agency that can provide individual guidance for homeowners facing foreclosure.

Moratorium on Foreclosures Ends Soon, the Time to Seek Relief is Now

Homeowners have endured a whirlwind of emotions over the past 12 months. From the lows felt when the virus first took hold to the temporary relief when the CARES Act was passed, one constant through it all has been a sense of uncertainty. Luckily, homeowners struggling to pay their mortgage each month have a source of support—but as of January 31, 2021, that assistance may no longer be an option.

What Happens on January 31?

On January 31, 2021, mortgage lenders can begin to initiate foreclosure proceedings on defaulted loans. Currently, there is a moratorium on single-family foreclosures, which was extended on 12/2/2020. So, no matter how many payments you may have missed recently, your lender was unable to initiate a foreclosure. That all changes on January 31.

An important exception to note is that if you had a foreclosure in process on April 3, 2020, your foreclosure might proceed at any time—so do not wait to take action.

What Does This Mean for Me?

You must act quickly to avoid a foreclosure if you have missed multiple payments. If your lender is unwilling to extend the forbearance, arrangements need to be made to bring payments current quickly.

What Is a Mortgage Forbearance Plan?

A forbearance agreement is between a borrower and a loan servicer that suspends or reduces mortgage payments for a period of time. One of the critical benefits of forbearance for a homeowner is that the loan servicer cannot initiate a foreclosure during this time.

While homeowners receive relief from their monthly mortgage payment, the relief is only temporary, and the payments must still be paid in full. Speak with your mortgage provider for the specific details of your forbearance agreement.

Key points to remember with a forbearance:

  • The total amount you owe does not decrease
  • Interest continues to accrue on skipped payments
  • The forbearance period is temporary

Differences in Forbearance Rules

The terms of your forbearance agreement can vary depending on the type of mortgage you have and who your lender is. Some of the variables can include:

  • How long the forbearance period lasts
  • What, if anything, is due during the forbearance period
  • How the skipped or lowered payments will be repaid once the forbearance period ends

Once the forbearance period ends, the lender is expecting payment to begin as agreed. If you are still facing financial hardship when the forbearance period ends, your lender may offer you a modification agreement.  If a modification is declined, the lender is then able to begin foreclosure proceedings.  An avenue to avoid a foreclosure is to consider selling your home. 

Short Sale or Quick sale

If selling your home becomes the best option to avoid foreclosure and the lingering impacts, a short sale (home is valued at less than is owed) or a quick sale (there is equity in the home however it needs to be sold quickly) are options to consider. 

In both cases, these sales require special expertise to be handled properly and quickly. Contact us for a confidential conversation to learn more about available options before it is too late.  We have specialized in sales like these since 2008.