We live in a rapidly changing environment, and what was good advice just a few weeks ago is not true today. So, check with MANY professionals before you make the decision to attempt a short sale.
Things that increase your chance of having a short sale approved:
-You have one lender, not multiple lenders.
-If you have more than one lender, other lenders will be getting some of the proceeds of the sale. (With a foreclosure they usually get nothing.)
-You are not requesting full debt forgiveness, but instead are asking for an unsecured note to pay any deficit in what is owed to the bank(s).
-You are current in your payments (if you’re behind already, its too late – they will foreclose faster than you can get the sale approved).
-You move QUICKLY.
-You provide the documentation they ask for, QUICKLY.
-You have had a change in your circumstances that has led to this issue – forced relocation (like military), illness, job loss/change, disability, divorce, etc.
-You can prove every claim you make “I can’t afford the payments much longer”, “I don’t have the resources to pay off the balance I’ll owe”.
-You marketed the property properly and received one or more reasonable offers, all of which are arms length (not your brother).
Other things you should consider:
-If the lender forgives any portion of the debt, you could owe taxes on that amount. Learn about the Debt Forgiveness Act Here, and talk to a competent tax advisor who is “up” on this (this is a law recently enacted and there are very few people who’ve filed a return yet under this new law).
-You will be forced to give the lender a gazillion papers (you will know that gazillion is a number once you see what they are asking for).
-This will take A LONG time.
-Consumers are being PROSECUTED for loan fraud, if you fudged the truth about your income when you got the loan, you should seek competent legal advice before contacting your bank. (Please note this is true even if the foreclosure happens).
-Your credit will still be significantly tarnished, and you likely won’t be able to buy another home (ever) without 20% down, and you won’t be able to buy at all in the near future. (However, it will probably be better than a foreclosure.)
As you can see, you’ll need to consult with a tax accountant, possibly an attorney and definitely a real estate agent before making the decision.
It might seem too hard, but, if your house goes to foreclosure, you’re not off the hook. Banks are pooling these “bad debts” and selling them to companies who will come after you for the remaining balance, unless you’ve negotiated something with the bank that prevents that. And, consumers who participated in loan fraud are being prosecuted regardless of whether the home went to foreclosure or there was a short sale. Being proactive and negotiating with a bank upfront for a short sale is probably your best option, you might be able to limit your future exposure for collection efforts, tax ramifications or prosecution for loan fraud.
Bottom line - if there is a way you can continue to ride out the market, pay your mortgage payments and make good on your debt, the market WILL eventually come back, and THAT is your best option. The WORST thing you can do is take the "Ostrich" approach and stick your head in the sand. Call a professional who can walk you through this process and get you the resources you need.
