The Short Sale Verses Foreclosure
There has been a great deal of ambiguity surrounding the benefits and ordinary meaning of a short sale versus what it means when a homeowner agrees to release their interest in a property instead of going through the foreclosure and debt collection process.
This article aims to help you understand how both types of property transactions operate to stall or terminate a foreclosure proceeding.
Deed In Lieu Of Foreclosure
Specifically, a deed in lieu of foreclosure is an actual legal instrument, usually in the form of an agreement in which the homeowner agrees to convey to the lender all remaining legal interest to the subject property in exchange for a legal release from any all deficiencies and financial obligations relating to the property.
The agreement between the lender and homeowner must be entered into voluntarily, in writing, and made in good faith.
A deed instead of a foreclosure does not typically include a third-party purchaser waiting in the wings to purchase the property. Instead, it is usually between the first-position lender and the defaulting homeowner.
Advantages For Homeowner
There can be significant benefits to such an arrangement. Specifically, there is no longer a threatening legal cloud over his or her ownership of the property for homeowner, nor is there the further risk of liability associated with having defaulted on the mortgage.
Advantages For Lender
Advantages to a lender include saving the time and legal expense of foreclosing on the borrower’s property. Most lenders would prefer not to get caught up in a protracted bankruptcy should the homeowner file for bankruptcy protection. Bankruptcy can tie up a residential property for many months and be costly to fight.
Distinction Between Deed in Lieu of Foreclosure and Short Sale
In essence, a short sale occurs when the sales price is insufficient to meet the seller’s mortgage obligations. Using the short sale process, the lender can agree to accept a buyer’s offer and forgive the balance that is still owed.
The major distinction between a deed in lieu of foreclosure and the transfer of real property through a short sale is that the latter involves an actual buyer and seller, with the lender having to either approve or not approve the sales transaction.
If the lender agrees to the transaction, it almost always means the lender will lose the legal right to pursue a deficiency judgment against the defaulting homeowner.
Finally, remember that negotiating a short sale is never an easy process. Banks and mortgage companies will only permit a short sale if they know they can make more money (or lose less) on the short sale than they would otherwise on the foreclosure. For most lenders, it’s a matter of simple arithmetic.
Proceed With Caution
Given that current recessionary forces may once again lead to high volumes of foreclosures, many sellers and buyers are considering entering into short-sale property transactions. However, buyers and sellers should carefully consider the expense and suitability of short-sale transactions before they begin the home search and negotiating process.
Foreclosure Defense Lawyer
For more legal and financial information on short sales, seek the advice of an experienced foreclosure defense lawyer.
