You’re facing a foreclosure. What do you do? Should you file for bankruptcy or try to sell short. When you sell short, you typically sell the home for less than what you owe. It’s painful, but maybe not as painful as bankruptcy – an option many homeowners rush into. bankruptcy leaves you with few options and a lot of liability. Here’s the difference between the two and some ideas on what might work out best for you.
What Happens During a Short Sale?
Selling a home short means that you did not make enough from the sale of your house to cover the costs of the loan. The remainder of the debt is often charged off. You receive a 1099 and the IRS counts this as income. You pay tax on it – no fun. But, there are benefits to doing a short sale.
For starters, Short Sales Realtor New Jersey offices often employ experienced real estate agents (certified realtors) that can sell a home inside of 6 months. This shortens the sales process for you and decreases the amount of time you spend taking care of the house for the bank. You get to move on with your life, and the bank gets the house so they can sell it to someone who can afford to pay the mortgage.
Banks will also often give you a relocation allowance if you enter into a cooperative short sale agreement. This agreement requires both you and the bank to work together to sell the house. Banks also typically give you a cash incentive to stay in the home, rent and mortgage-free, until the house is sold.
You agree to take care of the place, and they agree to pay you between $1,000 and $10,000 or more.
The Bankruptcy Option
Bankruptcy is an option that most people choose. They threaten banks with it. However, this is probably the worst option for borrowers. When you start bankruptcy proceedings with a lawyer, you pay a lot in lawyer’s fees, you may end up in Chapter 13 bankruptcy instead of Chapter 7, and you’re not going to walk away from the deal with your credit intact.
Chapter 7 bankruptcy is the chapter everyone is familiar with – you want away without paying a dime to your creditors.
Chapter 13 is what most people end up with. You repay your creditors, but on a schedule set by the court. You may even have to repay everything – your credit is still trashed and you don’t have a home when it’s all said and done.
Which Is Better For You?
Of course, there are times when bankruptcy makes sense. Maybe the housing market is so depressed that the bank is unwilling to do a short sale agreement with you, for example. But, in most cases, the short sale option is available and it’s one that the bank will recommend you try.
With a short sale, everyone wins. With a bankruptcy, you always lose and the bank might still get at least some (or all) of its money back. Whenever possible, always choose a win-win option.
Lisa Anders is a real estate professional of several years. Now semi-retired, she enjoys writing about all kinds of real estate-related topics. Look for her informative articles mainly on real estate and homeownership websites.
James Hendrickson is an internet entrepreneur, blogging junky, hunter and personal finance geek. When he’s not lurking in coffee shops in Portland, Oregon, you’ll find him in the Pacific Northwest’s great outdoors. James has a masters degree in Sociology from the University of Maryland at College Park and a Bachelors degree on Sociology from Earlham College. He loves individual stocks, bonds and precious metals.