A short sale is a way to limit damage to your credit if you’re facing foreclosure. Instead of letting the bank sell the home (and potentially evicting you in the process), a short sale lets you sell your business property or home for less than what you owe on the mortgage (with the approval of the lender). And usually it wipes out the balance owed in the process.
David Stanger Of Westmarq Real Estate Group has helped many homeowners with distress sales following the Great Recession. As someone with years of experience and education in the industry, he can tell you that bankruptcy should not rule out the short sale option. The short answer is: yes, you can proceed with the sale despite having filed for bankruptcy.
Here are some of the valid reasons from David Stanger to initiate a short sale, even if you’ve already declared bankruptcy…
Bankruptcy Won’t Protect You from Liability
Even if you’ve already filed for bankruptcy, the property is still in your name, explains David Stanger. That means if there’s an unfortunate mishap – for example, someone has an accident or slips on your property and gets injured – you’re still on the hook.
The same goes for any violations issued by the city. For example, if it’s deemed your property and is a hazard or not up to code, you could get an order to remedy the situation. A short sale will remove the burden of ownership. You won’t have to worry about dealing with these possible scenarios or heading to court to resolve them, he adds.
On the same note, it’s a courtesy to your neighbors – who may also have become friends during your time living in the area – to sell to a new owner that will restore the property as soon as possible, says David Stanger. Otherwise, your business property or home falling into disrepair could negatively impact the aesthetics and value of the neighborhood.
Protecting Your Future Buying Power
A short sale will still have an effect on your credit rating (depending on how far behind you are on payments). But it won’t be as detrimental as a foreclosure would be.
That’s because while the actual loss to your FICO score could be somewhat similar when comparing a short sale and foreclosure, the latter means you won’t be able to buy another home with traditional financing for seven years (the quickest way is with an FHA loan, which is eligible after three years, explains David Stanger.)
There May Be Incentives
While the HAFA incentive program for short sales is no longer available, some government-backed mortgages (namely through Fannie Mae and Freddie Mac) may be eligible for a Flex Modification program. They can lower your monthly payments through extending the life of your mortgage or lowering interest, explains David Stanger of Westmarq Real Estate Group.
With a forbearance agreement, the lender might suspend mortgage payments temporarily while also agreeing not to proceed with foreclosure.
The important thing to keep in mind here is that when you complete an application for a program to avoid foreclosure, generally you’ll stall or avoid the foreclosure process, says Westmarq Real Estate Group’s David Stanger. If loan modification options don’t work for you, a short sale is still your best option, he adds.
There might be a good reason to choose a short sale from a tax perspective too. The Mortgage Forgiveness Debt Relief Act of 2007 allowed homeowners to avoid declaring the forgiven debt from a short sale as taxable income. The provision was recently extended.
Don’t Let Bankruptcy Get in The Way
Not only can you still go the short sale route if you’ve already filed for bankruptcy, but there are number of good reasons to do so, explains David Stanger of Westmarq Real Estate Group.
Having an experienced agent in your corner during a short sale can minimize the stress and increase your chances of selling quickly, he adds.