Short Sale vs. Deed-in-Lieu

Short Sale vs. Deed-in-Lieu: What’s Your Best Choice?

Homeowners facing foreclosure often have the option of selecting a short sale or a deed-in-lieu of foreclosure as a possible solution to their financial difficulties. But are they? Which is the best choice? Like most alternatives, both have their upsides and their downsides. Understanding these options is the only way to make a truly informed decision.

In a Short Sale, your lender takes the loss

When you decide to use a short sale to prevent foreclosure, you should understand that the sale must have the lender’s approval and that lenders don’t always agree. What the lender is doing when he accepts, is permitting you to sell your home for less than you owe him and taking the loss himself. If he does go along with the short sale, it will relieve you of the burden (arrearages) as well as the cost, emotional strain and embarrassment of a messy foreclosure procedure. On the upside, a short sale is far less destructive to your credit rating than a foreclosure, as it is supposed to be listed as a “settled debt” on your credit report. However, it is still harmful to your credit score and can reduce it by 200 points or more.

On the downside, the lender could always go after you to collect the difference between the short sale price and what you owed him by getting a deficiency judgment against you. However, more often than not, this doesn’t happen simply because he knows that there is no money to recover and that he will have to pay all the costs of the legal action.

Deed-in-Lieu may be your fastest way out

A deed-in-lieu of foreclosure is when you give your home back to your lender, take your losses and thereby prevent the foreclosure. Lenders will frequently accept this because it is a less expensive and time consuming process for him than a full foreclosure action. The upside is that a deed-in- lieu is a faster solution than a short sale and that it is more likely to be acceptable to the lender. The ramifications to your credit score are about the same as the short sale.

On the downside, if the lender eventually sells the home for a price that doesn’t pay off the original mortgage amount, he can get a deficiency judgment and try to collect it from you. Once again, however, he knows that you can’t get blood out of a stone and probably won’t proceed if there doesn’t appear to be any money to recover.

Select either Short Sale or Deed-in-Lieu as early on as possible

The sooner you act on either a short sale or a deed-in-lieu the better. Once the foreclosure process is activated, you will not be in a strong position to negotiate with your lender because payment arrearages, interest and penalties have piled up. He can hold you financially responsible for his losses and seek a deficiency judgment that will appear on your credit report even if you don’t have the money to pay it. In either case, however, avoiding foreclosure is always a better choice in terms of the effect on your credit.

7 Steps you need to take to get started

Step 1 — Learn the terms

You need to know your options when it comes to your home. If you want to keep your house, but can’t make the payments and you owe more than your home is worth, you may look into filing bankruptcy. This will stay the foreclosure process (not forever) and may allow you to stay in your home and repay your lender under different terms.

Deed in Lieu - If you owe more than the home is worth, this is not an option for you. Deed in Lieu means that you give up the house to the bank and are walking away. Ie, you give up the deed instead of facing foreclosure.

Short Sale - If you owe more than your home is worth, and don’t want to declare bankruptcy or face foreclosure, then a short sale of your home is the best option.

Step 2 — Call me to help you

This is probably the biggest tip. Contact me, an experienced real estate agent who has completed extensive Short Sale training and has had dealt with short sales . I will be able to deal and negotiate with the mortgage company(ies) on your behalf. As an experienced short sale agent, I will give you a much better chance of successfully short selling your home.

Because there is often so many different entities involved in a mortgage (1st mortgage, 2nd mortgage, the investor on the loan, etc) you really don’t want to do this on your own, with no experience. Plus, you’ll never have any out of pocket expenses to pay me, as everything is essentially paid by the lender.

Step 3 — Start now

The longer you wait to get started with the short sale process the less chance you have of success. Every state is different with their foreclosure process. You need to decide quickly to start the short sale process if you’re getting behind on your payments, or have already received a notice of default.

Step 4 — Follow instructions exactly

I will tell you what you need to do to get the house ready to sell.

In a short sale, we priced the house on the lower side with the plan to receive offers very quickly. You need a buyer that is willing to stick around for a long closing or changes to the agreement. Don’t get hung up about the price, all you should care about is getting the place sold.

Step 5 — Know tax implications

Congress recently passed and the president signed a law that likely releases you from any tax implications of a short sale. Talk to a qualified tax attorney or CPA about this for your particular situation. As good agent, I have a quality referral for you to handle the tax implications of your short sale for you to consider.

Step 6 — Prepare to move quickly

Because your closing date may not be set in stone, you need to be prepared to leave your home quickly if needed. You do not want to end up like me and live in your office for 2 months! Trust me, it’s not fun!

A minimalist lifestyle is nothing to be ashamed of; in fact it should be venerated. Your possessions are just inanimate things; it’s the relationships in your life that really matter. OK, enough life advice! Sell anything you don’t need or haven’t used in the last 6 months on craigslist! The less you have to deal with on moving day the better.

Step 7 - Prepare yourself emotionally

If you are already in default, or have a foreclosure pending, this whole scenario and process of trying to short sell your home can be very emotionally draining.

You will receive solicitations from everyone and their mother. You may have people stop by your home while you are still there. It can be a very difficult process.

Make sure you have people in your life to talk to about your situation. You will need a support network to help through this time in your life. It will pass. And you are being proactive in seeking a short sale of your home. You are taking the right steps, and in time, everything will work out. I can’t promise it will be easy, but you will make it!

I am An Experienced Short Sale Agent!

Call or e-mail me today and let’s meet to discuss an appropriate tack to take.

Kevin Cloutier, Commercial & Residential Realtor

The Cloutier Team
Southern Premier Realty
1716 Cape Coral Pkwy W Suite 1
Cape Coral, FL 33914
239.628.4530 Office
Kevin@kevincloutier.com