Choosing whether to try and sell a home as a short sale or to enter into foreclosure is a personal decision that each homeowner has to make for himself. However, from a credit perspective, Scottsdale-based short sale lawyer Tim Mackey says that a short sale is almost always going to be the better option between the two. “Nine times out of 10, it makes more sense to go through a short sale,” says Mackey, a managing partner at Mackey Law Firm PC.
The reason? Mackey says that the real benefit of a short sale is that the homeowner can maintain more control of the transaction, which typically results in a smaller deficiency than when someone goes through a home foreclosure.
Before anyone can decide between a short sale and a foreclosure, though, he should know what each option entails.
Foreclosure
The foreclosure process on a home typically begins after the homeowner fails to make his or her payments for four months in a row. At that point, Mackey says, most banks will usually start the foreclosure process.
Once a bank has decided to foreclose on a home, it will deliver the owner with a notice of trustee sale. From the time that notice is delivered, the homeowner has at least 91 days until the property can officially be sold according to the laws that govern the foreclosure process, says Mackey.
According to Mackey, assuming that the bank follows those time lines like it is supposed to—meaning that it doesn’t extend the sale and hold it at a later date for one reason or another—the bank will hold a trustee sale 91 days after the notice has been served.
At the trustee sale, the bank will either sell the property, the property will be sold to a third party, or the bank will take the property back and own it itself—depending on how much interest there is in the property. If the bank takes the property back into its own possession, then the bank will usually hire its own real estate agent to market the property and sell it once again.
Mackey says that typically after a foreclosure sale has occurred, the bank will then inform the homeowners that they have anywhere from two days to 30 days to vacate the premises before they are forcibly removed.
Short Sale
A short sale is a very different process, in which a short sale lawyer, in Scottsdale in Mackey’s case, negotiates with the bank or the lender to accept a lower price on the home than what is owed on the mortgage. In a successful process, the attorney will be able to negotiate with the bank to discharge the remaining debt—which is the difference between the amount that is owed on the house and the amount that the house sells for—in exchange for simply getting the house sold.
One common mistake that homeowners make when determining whether to go with a short sale is that they either try to handle the process on their own, or they ask their real estate agents to handle it for them. This can present major problems, though, since neither individuals nor real estate agents know the proper terminology to use when dealing with banks and other professionals in the industry.
In a worst case scenario, a bank might agree to a short sale but not agree to discharge any of the debt—meaning that the homeowner would sell the property and still owe the bank money even after the sale has gone through. As a short sale lawyer in Scottsdale, Mackey says he would not advise clients to go through with a short sale if the bank is not willing to negotiate on the terms of the loan.
How To Decide Between the Two
Mackey explains that in the majority of scenarios, he would recommend that a homeowner try a short sale before going into foreclosure. A short sale is less likely to affect your credit, and people who sell homes in this way are more likely to be able to buy new homes in the near future when compared to those who go through foreclosure.
If a bank is completely unwilling to negotiate on the terms of a person’s mortgage in order to facilitate a short sale, then at that point, Mackey would encourage clients to start considering letting the property go into foreclosure. “If the bank was unwilling to release our client of deficiency liability, and if they would have no liability in the foreclosure, then we would simply suggest that the client let the home go into foreclosure,” he says.
Of course, the ultimate decision that a homeowner makes will depend on the specifics of his case. Mackey recommends getting in touch with a short sale lawyer if you are currently in this type of situation for immediate help negotiating the terms of your loan.
This article is for informational purposes only. You should not rely on this article as a legal opinion on any specific facts or circumstances, and you should not act upon this information without seeking professional counsel. Publication of this article and your receipt of this article does not create an attorney-client relationship.
