“Short” sale may be better than foreclosure

If you’ve been notified by your lender that they intend to foreclose on your mortgage, the first thing you should explore is Chapter 13 bankruptcy. That can forestall the foreclosure; and if you go through with it, Chapter 13 reduces your other debts (like credit card debts), and puts your missed mortgage payments on an interest-free payment schedule. It may also be an impetus for your lender to reduce (and fix) the interest rate on your mortgage to something you can manage.

However, if none of this would be enough for you to save your house (because, for example, you have no way of making even reduced payments), and if you cannot sell your house because it is now worth less than the mortgage, you might want to consider a “short” sale.

There are people in this business. They may contact you if you have received a foreclosure notice. To make a long story short, they try to talk the bank into selling them the house for something less than the outstanding mortgage (and less than current market value); and then to forgive the difference. They turn around and sell the house at market value (perhaps doing some fixing up first), making a profit.

You lose your house, just as you would with foreclosure, but you will not be held liable for the difference between what the house sells for and the outstanding mortgage as you might be in a foreclosure. And your credit is not hurt as much as it would be if you went through the foreclosure.

It’s not a great s0lution, but for some people it is the best way out of a bad situation.

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