Each presents unique advantages and difficulties for both buyers and borrowers/sellers – a short sale and foreclosure.
What Is A Foreclosure In New Orleans, Louisiana?
In basic terms, a foreclosed home refers to a property whose owner has failed to make mortgage payments, leading the lender to repossess it. If a homeowner stops making payments on their house, the lender may foreclose on the property in an attempt to recover the money that was loaned.
When a borrower fails to make mortgage payments, their home is usually foreclosed on by the lending institution. As a result, the lending institution takes ownership and possession of the property, and the borrower is evicted. These properties are then sold through auction or with the help of real estate agents. Foreclosure can have a significant impact on the borrower’s credit rating, making it challenging for them to secure a mortgage for several 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.
A short sale is when a property is sold, but the proceeds from the sale fall short of the amount owed on the outstanding loans secured by liens against the property. In such cases, the property owner may not be able to pay off the full amounts of the liens, and the lien holders agree to release their lien on the property and accept less than the amount owed on the debt. This process is often used as an alternative to foreclosure and can help borrowers avoid the negative impact of foreclosure on their credit rating.
A short sale can be a viable solution for both borrowers and lenders in certain situations. This process involves selling a home for a price that is less than the amount owed on the mortgage. The lender agrees to accept the proceeds of the sale as payment in full, even if the sale does not cover the full outstanding balance of the mortgage. Depending on the agreement between the parties involved, the borrower may or may not still be responsible for the unpaid balance, also known as the deficiency.
Selling a property through a short sale can be a time-consuming process, especially when multiple lending institutions are involved in the mortgage. To proceed with a short sale, all parties with a stake in the property must agree to the sale terms, which can include the borrower, the primary lender, secondary lienholders, and mortgage insurers. A potential deal can fall through if even one party does not agree to the sale, making it a complex process that requires patience and expertise.
Short Sale vs Foreclosure – Your Options
A borrower’s creditworthiness can be affected by both options, but a short sale typically has less impact than a foreclosure. Foreclosure can lower a borrower’s credit score by 300 or more points, whereas a short sale may only have a minor impact, possibly lowering the credit score by 100 points.
Under certain circumstances, borrowers who opt for a short sale may be able to purchase another home immediately, whereas those who undergo foreclosure are often ineligible to obtain a traditional mortgage and purchase another home for a period of 5-7 years.
“With the economy still recovering from the 2008 crash, many Americans find it challenging to keep up with monthly mortgage payments. When faced with the difficult decision of foreclosure or a short sale, or even a third option such as selling their house fast in New Orleans, borrowers in financial distress may find it necessary to take action quickly.”
At times, lenders may cooperate with borrowers to execute a short sale, as this could help them evade the costs and protracted process of foreclosing a property.
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 Omni Home Buyers 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.