Many people are conflicted between short sales vs. foreclosure. This article provides a summary of the two financial options available to borrowers who can no longer afford to make their mortgage payments. Individuals facing foreclosure or considering applying for short sale approval should consult with a real estate attorney to determine which option is best for their situation.

Short sales vs. foreclosure require borrowers to adhere to certain protocol established by their mortgage lender. Neither option allows homeowners to remain in their home. Short sales gives borrowers the opportunity to sell their home for less than is owed on the mortgage note, while foreclosure forces borrowers to return the keys to their lender and relinquish the property.

Short sales generally offer the best financial solution for borrowers who have become delinquent on mortgage payments but have not yet received foreclosure notice from the bank. This type of real estate transaction requires approval from the lender. Both borrowers and their property must meet certain criteria before short sale approval is granted.

With short sales, borrowers must contact their bank’s loss mitigation department. Delinquent mortgage accounts are assigned to a loss mitigator who works with homeowners throughout the process. When lenders agree to enter into short sale arrangements, borrowers are required to undergo financial examination.

Borrowers must submit a short sale packet consisting of numerous financial documents. Lenders generally request copies of banking and investment statements, payroll records, tax returns, list of income and expenses, and real estate related expenses such as property tax records and homeowners’ insurance premiums.

Most banks require homeowners to submit a short sale hardship letter outlining events which caused them to become delinquent on their mortgage note. Lenders prefer handwritten letters of hardship providing dates and details of events that caused their financial demise, along with actions taken to rectify the situation.

Mortgage lenders usually require borrowers to have a qualified buyer lined up before approving short sale transactions. Some banks will give borrowers time to list their home through a realtor and locate a buyer. This is usually two or three months. If a buyer is not located, lenders commence with foreclosure action.

There are two types of short sale agreements. The first is Payment in Full without Pursuit of Deficiency Judgment. This is the preferred choice for borrowers because lenders accept the sale price of the property as payment in full toward the mortgage note.

The second agreement is a Deficiency Judgment. Some lenders hold borrowers responsible for the deficiency amount between the sale price and loan balance. If borrowers are unable to pay the deficiency at the time of closing, the lender issues a judgment which remains on borrowers’ credit history until full repaid.

Foreclosure generally takes between three and twelve months to complete. Banks initially issue a Lis Pendens, which gives borrowers time to work with their lender to obtain a loan modification.

Loan modifications are sometimes offered to borrowers who have encountered a temporary financial setback. When banks modify loans they alter the terms of the note to help borrowers get back on track. This can be accomplished by temporarily reducing or suspending mortgage payments, or by rolling the delinquent amount to the end of the loan.

If borrowers do not qualify for a modified loan or do not possess the financial ability to continue making payments, the bank has no choice but to foreclose on the real estate. When property is foreclosed, the bank first places it for sale through public auction. If the house does not sell through auction, it is returned to the bank.

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The government has introduced some new bankruptcy laws for those who wish to file for bankruptcy. That means the persons who have higher incomes can not file themselves for a bankruptcy. They have to pay at least some of their debits under this rule. Before filing for a bankruptcy, they have to get their credit analysis as per the new rule. Sometimes, it is very difficult for somebody to signify themselves in a bankruptcy case because new requirements on the lawyers are enforced according to the rule. The difference between old and new rules is described briefly below.

Considering the old rules, one could make a choice of bankruptcy type that is most suitable for him/her. But, according to the new rule, those who wish to file for bankruptcy can be restricted based on the income levels and those with higher income levels can’t simply file for bankruptcy under any personal bankruptcy chapter of their choice.

The modify bankruptcy laws state that initially, the current monthly income of the person will be compared with the average income of a person of the same state. If it is found that the current income of the person is equal to or less than the average income, then one can file for bankruptcy, but, on the other hand, if the income level of the person is found to be higher than the average income in the respective state, then he/she may be restricted from filing a case for bankruptcy.

The actual aim of the government to enforce the bankruptcy laws is to find out if a person has more than sufficient income after spending on definite expenses and making needful payments, and stop such individuals from simply filing for bankruptcy despite generating a decent level of income. One can also test his/her candidature privately by cutting off some debit payments and allowed expenses from his/her present monthly income. If the total income left after this calculation is less than average level income in the state, then he/she can file for bankruptcy without any problems.

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Willingness is a most important tool which is used throughout the world for everything people buy, sell, need, produce, and invent. Willingness is also known as the mother of invention and creations. Will or willingness of people for doing any action must have great reasons. In case of real estate mortgage, it’s on parties to go for foreclosure, short sale or any other option. Short-sale is the hot choice of both parties these days. What is a Short-sale and why is it hot these days? When the owner agrees to sell a mortgage property and Lender agrees to sell at a discounted price than the original, that’s a Short-Sale.

In this type of Sale, willingness of seller (a homeowner) and lender (commonly a Bank or Mortgage house) is very important. It is a hot choice for both seller and lender for specific reasons. It is a good choice for buyer as if somebody is behind in mortgage a payment, losing a house is never be a good choice. It allows the person to sell the house for less than the person owe on it. Homeowners, with Short Sale do not need to worry about credit ratings, debt obligations and moreover they avoid foreclosure and bankruptcy.

Lender (Bank or Mortgage Company) also find it a better choice because of some benefits and reasons. When the lenders foreclose, they become responsible for that property and need to get rid of it in any manner.  Most of these lenders already have good number of foreclosed properties and they don’t want to increase the number. Leaving an empty property is again not a good choice because empty properties can have damages, fire and natural disaster by which they can loose everything. Lenders do find Short Sale a good choice for all the reasons and want to get the money in complete.

Short-Sale does require some documentation as for all other types of businesses and people must not be afraid of these documentations. Real Estate staff and companies are always a good choice for this type of sale. They can provide people with documentation help, advice, and legal contacts from where everybody can get satisfaction of the transaction and discuss taxation matters. Banks and mortgage houses are allowing more Short Sales these days than any other time, and the percentage ratio of short sale is higher. Short sale is a type of settlement by which the credit rating is much less affected than to foreclosure.

Short-sale is a time consuming task but is more reward providing than foreclosure and bankruptcy. It is important for sellers to choose a good real estate company or agent for Short sale and work according to their guidance. Willingness of both seller and lender for Short sale is very important as the process may be confusing. Seller must provide the hardship letter against loan and should prove that he / she is unable to pay mortgage loan. It earns much better results for both the parties and both of the parties get something better than any other choice like foreclosure.