Foreclosure, bankruptcy, short sale, or loan mod?
Distressed home owners here in Georgia, or anywhere else for that matter, have many choices to make. Some of those may involve us as real estate professionals. However some do not. We need to look at each situation and give our best advice. Each possible alternative has its positive and negative results and should be carefully considered.
Here are what I see as the primary choices and my thoughts on each.
Foreclosure: Some home owners will choose to simply stop making payments and walk away. Of course this will have a huge negative impact on their credit and they are homeless. However, once it is done they rarely (not always) have no more liability for any unpaid debt on the loan. Rarely would this be the best option for the home owner. I can see how it may be the easiest choice to make but just about any other choice would be better for the home owner.
Bankruptcy: This is an area where I think that we as agents may have a clouded view. We tend to really push sellers to a short sale. However I believe that we need to look at the bigger picture beyond just selling the home. Does the seller have other debts besides the mortgage? Will those debts still represent a hardship for the seller after the home is sold? If so it may be that the seller should at least consult with a bankruptcy attorney. On the other hand I have seen situations where people file bankruptcy only to try to save the house. In those situations I think the seller may have been better off with a short sale or loan mod.
Short Sale: In many cases now, it can be negotiated for the home to be sold for less than what is owed to the mortgage company. Very important... The short sale needs to be negotiated so the seller has no further liability on the debt! It is very common now for the bank to agree to the short sale but in the closing docs they will insert something saying the seller agrees to pay the remaining unpaid balance. What's the point for seller to agree. There isn't one that I can see. If a short sale will solve the sellers financial crisis and if there is no other liability on the debt, then a short sale is a great option.
Loan modification: In many cases restructuring the loan will solve the problem. Maybe there was a temporary job loss or there has been a permanent reduction in income. Many times the mortgage company will agree to reducing the payments in order to avoid foreclosure. They don't want the house, they own enough homes already. The seller gets to keep the house and continue living there.
Of course all of this is a pretty simplified explanation but here's the point. Sellers have important decisions to make and we need to give them the right advice. That advice may or may not include our services. Give the best advise we can today, provide the best service we can today, and the result may be business today, or it could be healthy seeds planted for the future.
Those are my thoughts. What are yours?
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