A term used a lot today in real estate is “Short Sale”. What is a Short Sale? Short Sale is a process when you sell your home for less money than what you owe to the bank. The bank ends up getting less money back from you and end up losing money on your home. In a sense the bank is short its money. If you remember when you purchased your home you signed a “Promissory Note” to the bank. You promise by signing a legal document to pay the bank back the money you borrowed from them. Some people have seen the value of their home drop to less than they borrowed to buy it….a lot less! Sometimes as much as 75%! Imagine buying a home and borrowing $500,000 from the bank. Then the real estate market goes down and your home eventually is only worth $250,000. You lost $250,000 on your home and you still owe the money to the bank. (Remember you signed a $500,000 Promissory Note to the bank).
So, what do you do when your home loses value? Some home owners are trying to make ends meet and continue paying their mortgage. They are still employed and financially secure so they live with it and look forward to the market getting better. Others home owners have lost their jobs and can’t afford to pay the monthly mortgage. You can walk away from your home, but we never advise that. If you do walk away, then the bank can foreclose on your property and that will severly hurt your credit, sometimes making your credit far more worse then its at now. I know you may be saying “why would I care about my credit at this point??” You should always care about your credit, even if you have to file fore bankruptcy (which will be a future post). The best way to resolve the loss of value in your home, we advise, is to call the bank and apply for a short sale. Some banks are more willing than others are. It all depends on the financial state of your bank. Once you get prelim approval for the short sale you will need to hire a Realtor to help with the sale of your home. The bank has the final right to approve or deny the sale of your home. The process is long and challenging but ultimately it is worth the effort verus a foreclosure.
