Short Sale vs. Foreclosure

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By lazy girl

Since the sub prime mortgage crisis many individuals nationwide and in Virginia have suffered from  nopt being able to afford mortgage repayments.  Are you beginning to experience issues paying your mortgage and are defaulting on your payments because of life altering hardships?  You are not alone in your struggles, there are millions of other homeowners in your same situation.  Some hope that with time things will just go back to the way things were.  They will get another job making similar money, they will catch up on their bills and somehow work out a loan modification.  Others just want to figure out how to remove this albatross from around their neck and finally get out of this house that they can no longer afford.

For those who are considering options to release them from their mortgage commitment, there are two that we will discuss in detail.  These are Short Sale and Foreclosure.  This summary will examine what are the advantages and difficulties for each of these options. We will also review how predatory lending practices can be identified through a forensic audit and used to your advantage.
A short sale is defined as a real estate transaction where the entire balance owed to a lending company is not satisfied.  Typically, a short sale is enacted when the borrower is about to or has already defaulted on a loan.  If the lender agrees to a short sale they recognize that the costs of foreclosure will be higher than the terms of the short sale and that it is more advantageous for all parties. For example, your home may be on the market in which you owe the bank $150,000.  Your home sells for $130,000.  You are short $20,000 to pay off the mortgage, this is referred to as a deficiency.

The bank has the option to forgive the deficiency or charge the borrower for the portion of the loan balance.  If the bank is willing to forgive the loss the short sale creates then after the settlement transaction, the borrower owes nothing more to the mortgage company.  In other words, using our example, the $20,000 difference is counted as a loss on the lender‘s books and eliminates any further obligations of the borrower.

Foreclosure is a formal legal proceeding where the lender will try to recoup costs that owed by taking possession of the property.  The lender starts these proceedings typically after ninety day of the borrower failing to make payments.  The property is used as collateral to secure the note.  The idea is that the bank will repossess the property and call the debt on behalf of the borrower satisfied.  Since the lender holds the title to the property it is possible to start proceedings of foreclosure once a borrow is in default.  The lender then has the option to sell the house to recoup the monetary loss they have experienced.  In order for a lender to foreclose on a property they have to absorb several costs these include but are not limited to legal fees, property maintenance and clean-up, appraisal, marketing, insurance and lost revenue.

Whether you are about to be a victim of foreclosure or agree to a short sale you need to know about an important tool that can uncover predatory lending practices.  A forensic mortgage audit will examine your mortgage documents for any mortgage violations, discrepancies, unfair fees, or other disclosures that were not made during the lending agreement process.  A forensic audit can stop foreclosure and help put pressure on the bank to agree to the terms of a short sale.  It may also stop you from having to file bankruptcy.  Bankruptcy can be a last resort for certain home owners to settle their debts and keep a roof over their head.

If you want to examine your situation for any mortgage violations, get a short sale approved, or stop foreclosure, you need begin by ordering a forensic audit.  This will highlight any lending practices that are deemed predatory and could result in a mortgage rescission, in which you find yourself in a position to negotiate better terms on your mortgage.