We all know someone who has faced financial hardship at one time or another. In this tough economy there are more and more people facing the prospect of foreclosure. As a viable alternative to foreclosure, or as an option to quickly sell your home if the need ever arises, you should consider a short sale. Simply put, a short sale is a property that is sold for less than the balance owed on the mortgage. This occurs when the lender to the mortgage on the property agrees to release the property from it’s existing mortgage and accepts a selling price less than the outstanding debt and accrued penalties and fees that are owed. While there is nothing positive about losing a house, a short sale is a far better option than the sting of a foreclosure.

The process to achieving a successful short sale can be long and tedious, but the pros far outweigh the hassles and inconveniences. So if any of the following apply to you, then you may be a candidate to pursue a short sale:

1. Currently behind on your mortgage payments
2. Loss of income/job
3. Serious illness or medical problems
4. Facing bankruptcy
5. Imminent foreclosure proceedings

Short Sale Pros and Cons

Pros:

• No Selling Costs. The existing lender who holds the mortgage to the property will typically cover the closing costs at the sale/closing of the property.
• Less Damage to Credit Score. A less damaged credit score means you have the ability to begin repairing and rebuilding your credit more quickly.
• Avoid Deficiency Judgement. A short sale will avoid a deficiency judgement. With a foreclosure, a lender can still pursue the homeowner for the difference between what a property was sold for and what the homeowner owed on the home.

Cons:

• Difficult to retain buyers. Waiting for a 60 to 90 day approval could turn many buyers away.
• No money retained from the sale. The homeowner typically receives no money from the sale, because the bank is most likely taking a loss.
• Proposal/Agreement could require a personal loan. Some lenders request the homeowner take out a personal loan to help cover part of the loss. In many cases this is unrealistic or the homeowner would have already used such resources to avoid being delinquent on mortgage payments.

Why Avoid Foreclosure?

Those facing the prospects of foreclosure are likely experiencing mounting debt, lates on mortgage payments and creditor calls. However, a foreclosure can have long-lasting, negative effects on your financial future, regardless if you decide to pursue the purchase of another home in the future or not. You should consider the following:

• A foreclosure will be a part on your credit record for 7 to 10 years.
• A low credit score will affect your purchasing power and ability to obtain market financing (think of other long-term loans you might need in the future – student loans, car loans, etc.).
• A lender may pursue a deficiency judgement against a homeowner for the difference owed on a property.
• Avoiding a bankruptcy or foreclosure and having the opportunity to rebuild your credit more quickly is a good reason to pursue a short sale.