Foreclosures and short sales are viable alternatives for Tennessee residents in financial distress. Each can affect your future prospects of getting a loan, impact your credit score and credit report, and carry specific tax implications. However, the two also differ significantly.
Understanding the difference empowers borrowers and buyers of such property in their decision-making. An experienced family law firm in Kingston can explain the distinctions between the two processes and help you make informed decisions.
How is a Foreclosure Different From a Short Sale?
A short sale is usually an option if the borrower owes more in loan than the property’s market value. It involves convincing the lender to accept an amount less than what you owe. For example, the current market value could be $250,000, but you owe $300,000. You could convince the lender to accept the $250,000 you will likely recover in a short sale as debt repayment.
On the other hand, foreclosure happens when you miss several mortgage payments in Tennessee. You might receive notice of the default and get a chance to redeem yourself by making up for the missed payments. The house won’t be sold immediately because specific procedures follow before the actual foreclosure.
What is Needed in Each Case?
Short sales and foreclosures have different requirements that set them apart. To apply for a short sale, you might need to provide the lender with:
- A copy of the listing agreement between the broker and the homeowner
- HUD-1 or the Preliminary Settlement Statement
- Executed contract
- Supporting documents and financial worksheets from the borrower or seller
- An expert’s opinion on the current value of the property
In a foreclosure, the lender is required to provide you with:
- A pre-foreclosure breach letter
- A foreclosure notice
- An opportunity to apply for loss mitigation
- A chance to file for bankruptcy
- An option to pay and prevent the process
- Special treatment if you are in the military
Lenders and borrowers in the two have different responsibilities and obligations. An attorney can advise parties on what they need to do in every situation.
How Do Their Processes Differ?
Foreclosures can happen without the homeowner’s will or approval. The lender simply has to notify you, wait for a certain period, and advertise the event in a local newspaper. And on the d-day, the borrower will have no option but to watch the foreclosure take place.
On the other hand, homeowners thinking of a short sale have to convince the lender to accept their proposal. If they get the go-ahead, they could sell the house at the agreed value, and pay the lender with the amount recovered. Skilled Tennessee real estate attorneys usually help their clients with the negotiations.
Which Alternative Takes Longer?
Borrowers looking to get over and done with property issues might want the faster alternative. Again, spending too much in a legal tussle can drain your resources in an already challenging financial season. Notably, foreclosures take lesser time to conclude compared to short sales.
Generally, lenders in foreclosures are more determined to recover their money. Considering you have not met your financial obligations in the past few months, they probably want to recover what they can. Lenders in a short sale dispute don’t have much to worry about since you have been making payments. Thus, they can take up to a year to resolve.
How Differently Does Each Damage Your Credit?
While both foreclosures and short sales have the potential to damage your credit, the effects are of different magnitudes. A foreclosure stays in your credit record for up to seven years. And in that period, you might never be able to buy another house until the fifth year.
Homeowners can finish a short sale and buy another home soon afterward. While it could be challenging, it is possible. Basically, the effects of a short sale on your credit are not as damaging as that of a foreclosure. So, if you are considering being a homeowner sooner than later, you might want to avoid foreclosure and ask Kingston real estate attorneys about other alternatives.
How Different is it For a Buyer in a Short Sale and a Foreclosure?
Buyers in a short sale get a chance to have the house inspected before they seal the purchase deal. They can even take a mortgage to facilitate the purchase in Tennessee. The only disadvantage would be the long wait, and lots of paperwork, something a Tennessee real estate attorney can help with.
People buying a home in a foreclosure can only pay in cash, and taking a mortgage to finance the purchase isn’t possible. They also don’t get a chance to inspect the house before buying it because the sale normally takes place in a courthouse. You might also not know about any liens tied to the house.
Are the Roles of an Attorney Different in Each Case?
An attorney’s responsibilities in a short sale might differ from what they would have to do in a foreclosure. In a foreclosure, your Kingston real estate attorney ensures that the right procedures are followed to the latter. They will also advise on avenues to improve the outcomes based on your circumstances.
A lawyer representing a client in a short sale plays a significant role in negotiating favorable deals and representing their interests. They could also help with the extensive paperwork involved in this alternative.
Attorneys Bringing Knowledge and Skill to Your Case
Legal matters can be complicated, especially for a layperson. Attorneys spend years in law school learning about it, and more years practicing it to really grasp the concepts well. Thus, attorneys can easily explain how different various legal alternatives are.
Our attorneys are highly knowledgeable and can add value to your case. Financial problems are not always easy to get out of, but a skilled attorney can advise on the best options for you to choose from. Speak to us today to forge a way forward.