When a homeowner buys a house, they never imagine that they will ever have to face the pain of foreclosure. However, the recent downturn in the global economy and falling real estate prices have forced many people to lose their homes. The process of foreclosure can be long distressful and can damage the savings, assets, and credit of the person quite severely.
Alternative to foreclosure
However, homeowners who are unable to repay their home loans have another option in the form of a Short Sale Process. A short sale is essentially a transaction wherein the bank allows the delinquent homeowner to sell the property for less than what is owed. The borrower finds an agent and places the property on the market, usually at a considerable discount. This is done in the hope that if the property sells then the lender will be able to get the majority of the amount that the homeowner owes. This helps in avoiding the expense of a foreclosure suit and the possible long-term cost of owning a property that has been foreclosed and is hard to sell.
With a short sale, the borrower does not get absolved from the debt that they incurred with the original mortgage, but it is often better than a downright foreclosure. Let us take a look at some reasons why a short sale process is better than a foreclosure.
Why lenders opt for short sale
Lenders would prefer to recover a portion of the mortgage rather than absorb a total loss. And a short sale allows both the lender and the homeowner to end up in a better position. Sometimes the bank will sue the homeowner for a deficiency judgment even after the foreclosure, and it will appear on the credit report of the homeowner just like a foreclosure. On the other hand, instead of enduring a costly and lengthy litigation process a bank will cut its losses and provide the option of a short sale to homeowners who have proven hardships like divorce or loss of income. The reduced amount of money will ease the burden on the homeowner and will not irreparably damage their credit.
Foreclosure has a negative impact as a whole
A foreclosure does not just affect the homeowner in a negative way, but also the lender and the housing market in general. The homeowner gets a negative mark on the credit report which makes it difficult and at times impossible to get another home loan, car loan or any credit. The banks lose money because the price that the house sells at is often lower than the expense incurred by the bank in the overall process of foreclosure. The housing market also suffers from foreclosure due to the decreased value of homes. This is the reason that short sale is a better alternative to foreclosure for all parties involved.
You can learn more about the short sale process by conducting some research online. There are many articles and blogs which discuss this subject and with a little research, you will not only realize the benefits of a short sale but also learn about the process in general.