Whether you’re a buyer or a borrower/seller, a short sale, and foreclosure each present different advantages and difficulties.
What Is A Foreclosure In Milwaukee, Wisconsin?
In simple terms… “A foreclosed home is one in which the owner is unable to make his mortgage loan payments and the bank repossessed the home” (source). If you stop making your house payments… your lender has the right to foreclose on your property so they can attempt to recoup their money that was lent to you. In Wisconsin, the lender can start the process when you are 120 days in default with your mortgage payment. They will file what is known as a Lis Pendens. The Lis Pendens is a public announcement of your default. It is filed at the same location as your mortgage for your county.
A home is typically foreclosed on when a borrower fails to make mortgage payments. The lending institution assumes ownership and possession of the property, evicting the borrower. These properties are then sold at auction or more traditional means utilizing the service of real estate agents. A foreclosure can damage the credit rating of a borrower, and make it very difficult to obtain a mortgage for many years.
In the state of Wisconsin if your house is foreclosed on and the lender sells the house at auction for less than what you owed, the lender can go after you for the deficit balance owed. This is very important for many reasons. Should you be a disgruntled home owner and purposely damage the property, therefore making it less valuable if and when it finally goes to auction, the decreased value could still be your responsibility. If during the winter time you shut off the utilities and the property suffers water and mold damage, again, you still may be held responsible.
Depending on the state that you live in… a foreclosure can work in different ways. Check out the foreclosure process information over here at the HUD Government website.
What Is A Short Sale?
In a short sale, the home is still owned by the borrower.
The definition of a short sale is… “A short sale is a sale of real estate in which the proceeds from selling the property will fall short of the balance of debts secured by liens against the property, and the property owner cannot afford to repay the liens’ full amounts and where the lien holders agree to release their lien on the real estate and accept less than the amount owed on the debt” (source: Wikipedia)
In some cases, a short sale is an option agreed upon by borrowers and lenders. In a short sale, the home is sold for less than the outstanding balance of the mortgage. The unpaid balance (known as the deficiency) may or may not still be owed by the borrower. The lender may or may not issue a 1099 tax form for the deficiency. This deficiency is therefore considered income on your tax return. Consult your tax accountant for their advice.
This option typically takes some time, as a few different lending institutions may own the mortgage. All parties who have a stake in the property must agree to the terms of the sale, and a potential deal could fall through if even one lender doesn’t agree.
In Summary, a foreclosure is caused by an owner unable to make their mortgage payments. A short sale situation occurs when the value of the house is less than liens/mortgage(s) held against it. There is even a possibility that a homeowner can be behind in their payments on a house that is worth less than the loans held against it.
Short Sale vs Foreclosure – Your Options
While both options can have ramifications, a short sale often has less of an impact on the borrower’s creditworthiness. A foreclosure could impact a borrower’s credit score by 300 or more points, where a short sale may only dent the credit score by 100 points.
Borrowers who are foreclosed on are often ineligible to purchase another home for 5-7 years with a traditional mortgage, where under certain circumstances, a short sale borrower can purchase immediately.
As many Americans struggle with an economy that has yet to completely recover from the 2020 Coronavirus pandemic, folks are having a hard time making monthly mortgage payments. Choosing between being foreclosed and initiating a short sale (or a 3rd option… selling your Milwaukee house fast ) is an easy choice for a borrower having troubles paying their mortgage on time.
Sometimes, lenders are willing to work with borrowers to complete a short sale, to avoid the fees and time-consuming process of conducting a foreclosure.
Our suggestion is always this.
- Talk with your lender and discuss ways that they can work with you on your loan. Some may allow you to add the unpaid mortgage payments onto the back of the loan. This is a very good option.
- Another option that the lender may give you is a deferred payment. Please be careful with this one. They may say you do not have to make a payment for three months or so. The question is, after whatever timeframe is up, are the back payments due at the end of the time period? Example: If your loan payment is $1,000 a month and you are behind three months on a three month deferred payment plan, is $4,000 due on the fourth month? Also, are there any late fees due? And worst case, at the end of 120 days, are you open to the possibility of a Lis Pendens being filed against you. A Lis Pendens is the beginning of the foreclosure process. DISCLAIMER: The information provided here is not given as legal advice and must be verified by your legal counsel and/or lender. It is merely provided as information to consider and investigate doing your own due diligence.
- Attempt other programs your lender may have that forgives part of your loan, creates a new / more affordable monthly payment so you can get back on your feet, etc.
- If the bank isn’t willing to work with you very much… your best option may be to sell your house. Work with a local professional house buyer service like Best Choice House Buyers to sell your house fast for an all-cash offer. If you’re interested we can look at your situation and make you a fair offer on your house within 24 hours. Just fill out the form on our website over here >>. There are situations where a homeowner has not been able to complete a successful short sale but Best Choice House Buyers can.
- Foreclosure. Last resort is to let the house fall into foreclosure. This is the worst possible scenario. It’ll harm your credit and you could still be left with money owed to the bank even after the foreclosure is finished.
By knowing your options, you may be able to dodge a significant impact on your credit score, allowing you to purchase a new home when your situation improves. A foreclosure on your credit report makes that possibility extremely difficult for 5-7 years, so if you have the opportunity, a short sale can be the better option. Again, a short sale does take time and in many cases, knowledge and experience in coordinating all of the parties, i.e. multiple lenders, to an agreement. On a positive note, Best Choice House Buyers has this knowledge and experience.
Have a pending foreclosure or short sale situation? We’d like to make you a fair all-cash offer on your house.