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Short Sale vs Foreclosure – What’s the Difference in Brooklyn?
Whether you’re a buyer or a borrower/seller, a short sale, and foreclosure each present different advantages and difficulties.
A short sale and foreclosure are both options for homeowners facing financial difficulties and challenges in making mortgage payments. However, they differ in terms of the process, consequences, and impact on the homeowner’s credit. Here’s a brief overview of the differences between a short sale and foreclosure in Brooklyn:
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Short Sale:
- Definition: A short sale occurs when a homeowner sells their property for an amount less than the outstanding mortgage balance, with the lender’s approval.
- Process: In a short sale, the homeowner typically works with a real estate agent to find a buyer. The agreed-upon sale price is then submitted to the lender for approval. If the lender agrees, the sale proceeds, and the remaining mortgage balance may be forgiven or negotiated.
- Credit Impact: While a short sale does have a negative impact on the homeowner’s credit, it is generally less severe than a foreclosure. The impact may last for a shorter duration.
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Foreclosure:
- Definition: Foreclosure is a legal process in which a lender repossesses a property after the homeowner fails to make mortgage payments. The lender takes ownership of the property through a court-ordered sale.
- Process: The foreclosure process involves several stages, including missed payments, notification of default, public auction, and potential eviction of the homeowner. Once the property is sold at auction, the proceeds are used to satisfy the outstanding mortgage debt.
- Credit Impact: Foreclosure has a significant negative impact on the homeowner’s credit. It can remain on the credit report for up to seven years, making it challenging to obtain credit or secure favorable terms for new loans.
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Considerations:
- Timing: A short sale is typically initiated by the homeowner when facing financial hardship, while foreclosure is a process initiated by the lender after missed payments.
- Involvement of Lender: In a short sale, the lender must approve the sale, while in a foreclosure, the lender takes control of the property through legal proceedings.
- Remaining Debt: In a short sale, the lender may forgive the remaining mortgage balance or negotiate a settlement. In a foreclosure, the lender may pursue the homeowner for any remaining deficiency after the sale.
It’s important for homeowners in Brooklyn facing financial challenges to explore their options early, including discussing potential solutions with their lender, seeking advice from financial counselors, and consulting with real estate and legal professionals. Each situation is unique, and the best course of action may vary based on individual circumstances.
Short Sale vs Foreclosure – What’s the Difference in Brooklyn?
What Is A Foreclosure In Brooklyn?
In simple terms… “A foreclosed home is one in which the owner is unable to make his mortgage loan payments and the bank repossessed the home” (source). If you stop making your house payments… your lender has the right to foreclose on your property so they can attempt to recoup their money that was lent to you.
A home is typically foreclosed on when a borrower fails to make mortgage payments. The lending institution assumes ownership and possession of the property, evicting the borrower. These properties are then sold at auction or more traditional means utilizing the service of real estate agents. A foreclosure can damage the credit rating of a borrower, and make it very difficult to obtain a mortgage for many years.
Depending on the state that you live in… a foreclosure can work in different ways. Check out the foreclosure process information over here at the HUD Government website.
What Is A Short Sale?
In a short sale, the home is still owned by the borrower.
The definition of a short sale is… “A short sale is a sale of real estate in which the proceeds from selling the property will fall short of the balance of debts secured by liens against the property, and the property owner cannot afford to repay the liens’ full amounts and where the lien holders agree to release their lien on the real estate and accept less than the amount owed on the debt” (source: Wikipedia)
In some cases, a short sale is an option agreed upon by borrowers and lenders. In a short sale, the home is sold for less than the outstanding balance of the mortgage. The unpaid balance (known as the deficiency) may or may not still be owed by the borrower.
This option typically takes some time, as a few different lending institutions may own the mortgage. All parties who have a stake in the property must agree to the terms of the sale, and a potential deal could fall through if even one lender doesn’t agree.
Short Sale vs Foreclosure – Your Options
While both options can have ramifications, a short sale often has less of an impact on the borrower’s creditworthiness. A foreclosure could impact a borrower’s credit score by 300 or more points, where a short sale may only dent the credit score by 100 points.
Borrowers who are foreclosed on are often ineligible to purchase another home for 5-7 years with a traditional mortgage, where under certain circumstances, a short sale borrower can purchase immediately.
As many Americans struggle with an economy that has yet to completely recover from the 2008 crash, folks are having a hard time making monthly mortgage payments. Choosing between being foreclosed and initiating a short sale (or a 3rd option… selling your house fast )is an easy choice for a borrower having troubles paying their mortgage on time.
Sometimes, lenders are willing to work with borrowers to complete a short sale, to avoid the fees and time-consuming process of conducting a foreclosure.
Our suggestion is always this.
- Talk with your lender and discuss ways that they can work with you on your loan. We offer this service where we can help guide you in the right direction if you run into issues with your lender… just reach out to us on our Contact page and we’ll discuss your situation.
- Attempt a short sale or other programs your lender may have that forgives part of your loan, creates a new / more affordable monthly payment so you can get back on your feet, etc.
- If the bank isn’t willing to work with you very much… your best option may be to sell your house. Work with a local real estate house buyer service like Tristate Holdings 167 Inc. to sell your house fast for an all-cash offer. If you’re interested we can look at your situation and make you a fair offer on your house within 24 hours. Just fill out the form on our website over here >>
- Foreclosure. Last resort is to let the house fall into foreclosure. This is the worst possible scenario. It’ll harm your credit and you could still be left with money owed to the bank even after the foreclosure is finished.
By knowing your options, you may be able to dodge a significant impact on your credit score, allowing you to purchase a new home when your situation improves. A foreclosure on your credit report makes that possibility extremely difficult for 5-7 years, so if you have the opportunity, a short sale can be the better option.
Have a pending foreclosure? We’d like to make you a fair all-cash offer on your house.
Conducting a short sale on your Brooklyn home involves a series of steps, coordination with various parties, and adherence to specific procedures. Here’s a general guide to help you navigate the short sale process:
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Assess Your Financial Situation:
- Evaluate your financial circumstances and determine whether a short sale is a viable option. This is typically considered when you’re unable to continue making mortgage payments, and the home’s value is less than the outstanding mortgage balance.
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Contact Your Lender:
- Inform your lender about your financial difficulties and express your interest in pursuing a short sale. Ask about their specific short sale process and any required documentation.
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Hire a Qualified Real Estate Agent:
- Choose a real estate agent experienced in short sales, especially in the Brooklyn market. An agent with expertise in short sales can help navigate the process, negotiate with the lender, and market your property effectively.
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Determine Market Value:
- Work with your real estate agent to determine the fair market value of your Brooklyn home. This is crucial for setting a realistic asking price and presenting a compelling case to your lender.
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Prepare a Hardship Letter:
- Write a detailed hardship letter explaining your financial challenges, the reasons for the short sale, and any other relevant information that may support your case. This letter is typically submitted to the lender.
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Gather Financial Documents:
- Collect necessary financial documents, such as tax returns, pay stubs, bank statements, and other proof of income and assets. Your lender will likely require this information to assess your financial situation.
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List the Property for Sale:
- Work with your real estate agent to list the property for sale. The listing should reflect the fair market value determined earlier. Marketing efforts will attract potential buyers to submit offers.
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Review and Accept Offers:
- Once offers are received, review them with your real estate agent. Accept an offer that meets your lender’s criteria and has a high likelihood of approval.
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Submit Short Sale Package to Lender:
- Prepare and submit a short sale package to your lender, which includes the purchase agreement, hardship letter, financial documents, and any additional information required by the lender.
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Negotiate with the Lender:
- Your lender will review the short sale package and may initiate negotiations. Be prepared for potential counteroffers or requests for modifications to the terms.
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Receive Lender Approval:
- If negotiations are successful, you will receive formal approval from the lender for the short sale. This approval will outline the terms and conditions of the sale.
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Close the Sale:
- Once the short sale is approved, proceed to closing. Ensure that all parties involved, including the buyer, adhere to the agreed-upon timeline.
It’s important to note that each short sale is unique, and the process may vary based on the lender’s policies and specific circumstances. Consulting with a real estate attorney or financial advisor can provide additional guidance and ensure that you navigate the process correctly.
Short Sale vs Foreclosure – What’s the Difference in Brooklyn?
In a short sale transaction, the costs associated with the process can vary, and some fees may be incurred by the seller. Here are common fees associated with conducting a short sale on your Brooklyn house:
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Real Estate Agent Commission:
- The real estate agent representing you in the short sale process typically charges a commission. This fee is usually a percentage of the sale price and is negotiable. In some cases, the lender may cover or contribute to the agent’s commission.
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Closing Costs:
- While the buyer traditionally covers closing costs in a standard real estate transaction, in a short sale, the lender may negotiate to have the seller contribute to some of these costs. These costs can include title insurance, escrow fees, and other miscellaneous expenses.
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Attorney Fees:
- You may choose to hire a real estate attorney to navigate the legal aspects of the short sale. Attorney fees can vary, and some attorneys may work on a flat fee or hourly basis.
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Outstanding Loan Balances:
- Depending on the agreement reached with the lender, you may still be responsible for any remaining balance on the mortgage that is not covered by the short sale proceeds. This is known as a deficiency, and its resolution may be negotiated with the lender.
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Property Maintenance and Repairs:
- It’s common for sellers to be responsible for property maintenance and repairs required by the lender or as part of the short sale agreement. This can include addressing issues identified during inspections.
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Homeowner Association (HOA) Fees:
- If your property is part of a homeowners association, you may need to settle any outstanding HOA fees or dues. These fees are typically the responsibility of the seller.
It’s essential to communicate openly with your lender and negotiate the terms of the short sale agreement. Some lenders may be willing to cover certain fees or expenses to facilitate the sale. Additionally, consulting with a real estate attorney and a tax professional can provide guidance on potential financial implications and help ensure that you are fully aware of the costs involved.
Keep in mind that each short sale is unique, and the specific terms and agreements can vary based on negotiations with the lender and the circumstances of the sale. Always seek professional advice to navigate the complexities of a short sale transaction.
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