At times, we find there are people who are under the impression that doing nothing and letting their house slip into foreclosure is a “safer” option than entering into a short sale. “What if the lender comes after me for the deficiency” is a common concern – with the presumption that under a foreclosure, they will somehow not be able to pursue the deficiency. Anyone facing foreclosure should be informed as to the state laws, the implications and what other options may be available. That is a part of what we do at Short Sale Legal Service so that our clients are able to make informed decisions.
Deficiencies exist with Short Sales AND Foreclosures, and Michigan is a deficiency state – meaning your lender can, at their option, pursue a deficiency judgement. From a numbers standpoint, the only remaining question is then: which deficiency is greater?
Facts as of January 2010:
Average Short Sale price was $215,300
Average REO (Foreclosure) price was $141,900
When correctly done, a short sale should yield a selling price close to market value and almost always result in a lower deficiency than an REO sale. In addition to the greater sale price deficiency with a foreclosure, attorney fees, maintenance fees, etc. associated with the foreclosure process are also added to the balance owed. Other issues associated with foreclosure include longer waiting periods in order to qualify for future loans, greater impact to ones credit score and credit history, current and/or future employment problems as more employers are using credit for evaluation purposes.
Short Sale: A Negotiated Solution
A short sale is making the best of an unfortunate situation and mitigating damages to all parties. The homeowner generally continues to live in the property (without making payments) and maintains it during the process, which helps to bring a higher selling price. In some cases, we are able to convince the lender to waive their right to pursue a deficiency – something not possible with a foreclosure. Add in the future lending wait times, credit ramifications and it becomes clear that the short sale is the preferred solution for those who cannot continue to make their payments.
