What You Need To Know About Short Sales And Avoiding Foreclosure

Some homeowners who are facing foreclosure are given the opportunity to negotiate a short sale with their lender or bank

. The Home Affordable Foreclosure Alternative (HAFA) program just recently offered new guidelines for banks and homeowners to follow when negotiating a short sale.

Short sales occur when a bank and a borrower decide to sell the home at a lower price to prevent foreclosure. Don't think that the bank is doing you any favors by offering you a short salebanks tend to just offer short sales when they believe they can lose less money. Short sales benefit both the bank and the borrowerthe lender won't lose as much money as they do in foreclosure, and your credit history won't have the typically big impact of a foreclosure. But, the borrower does not keep the house, and the borrower may still have to pay the deficiency, or the difference between the lower selling price and the higher value of the mortgage.

These are a few things that HAFA changed to make short sales more efficient:

1. Pre-approved terms of sale. Before, many people just walked into a short sale without knowing whether their lender would accept the terms of the sale of the house. Now, this rule makes it so banks are less inclined to just back out of a sale for any reason whatsoever because they have terms that are spelled out beforehand.

2. Eligibility requirements. A lot of people - just like with loan modificationsapply for short sales but were never eligible from the beginning. Now, the eligibility requirements have been made clearer. In order to be approved according to the new regulations, your mortgage must have been signed prior to 2009, the unpaid principle must be under $720,750, and the house must be your primary residence.

3. The lender has to do more work. Thankfully, a lender has to approve or deny a short sale within 10 days--also, they will be required to offer a short sale to people facing foreclosure. The great news for borrowers in these new rules is that lenders can't collect a deficiency balance on the first or second mortgage. These new rules will help many people who face foreclosure today, but unfortunately, a short sale isn't going to get everybody protection from foreclosure. Plenty of hard working families will still face foreclosure because they don't qualify, their applications are denied, or for some other reason.

A lot of times short sales can be more beneficial than a foreclosure, but for families who cant get one there are other possible options. A Chapter 13 bankruptcy provides you with additional legal protection from creditors that a short sale won't necessarily provide. Your harassing creditor calls will stop. More than anything else, though, you can get protection from foreclosure in a Chapter 13 bankruptcy. Chapter 13 bankruptcy can offer hardworking families the fresh start they need to put debt behind them and to stay in their home.

by: Jim Brown

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