My husband and I are in over our heads in our home, which is currently financed for more than we could probably get for it if sold (not to mention the cost of realtors). We are looking into buying a much cheaper home somewhere else and are approved for that loan and for keeping and renting out our current property. The problem is, our payment is so high we are having a hard time finding a renter. If we cannot keep a renter do we let it go to foreclosure? Or sell it at a loss? What are the procedures here and how to we pay the difference? If it is foreclosed upon how to we pay any money that can't be recovered? If we sell, how do we finance the remaining cost? We also have two mortgages, not one, not sure if this makes a difference.
I am often asked for advice about foreclosure vs. short sales. Short sales are very complicated and there MUST be extenuating circumstances for this to be approved by the lender, or in your case, lenders (i.e. lost job, reduced income, etc.) Being upside down, or not wanting to pay high payments anymore is not going to be an approved reason for a short sale.
Short sales only benefit the bank. If the bank agrees to take less money, it is a far easier hit for them than to take the property back. It may benefit Realtors to also agree to assist you in a short sale, however many don't realize that until the very last day, the commission may not be approved by the bank, in which case, the Realtors don't get paid or get paid less than whatever the agreed-upon amount was to be.
There are also tax ramifications to the seller from a short sale. If your property was sold $50,000 short, you will be taxed on $50,000 income (as if you actually GOT it!) And if the paperwork is not done exactly right, you may receive a $50,000 bill from the bank. Talk to a lender….you will also find out that short sales affect your credit and ability to buy again every bit as negatively as a foreclosure.
In foreclosure, there are no deficiency judgements unless it is a judicial foreclosure (most are not). Check the laws in your state. You also don't have the bank into all your personal affairs. It's a clean and much simpler process even though it hurts like heck to go this way. It always "feels better" to try to do a short sale because it is the more "responsible" thing to do.
I cannot advise you but I gave you enough information to make an intelligent decision.
If you are going to buy again, do not make ONE late payment and you will be buying again in two years or less…..foreclosure OR short sale.
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