What are my options if I can’t pay my mortgage?
Will I lose my home to foreclosure?
If you are having difficulty paying your mortgage, your financial health will determine whether you qualify for a “short sale” or “short payoff”. Liquidation is the only option in a short sale whereby a short payoff results in retention.
What is a Short Sale?
A “short sale” is when you owe more than the home is worth and the lender agrees to liquidate the property for less than you owe.
Here is an example: John owes $500,000 on his mortgage. John’s home is valued at $400,000. John is “upside down”; meaning he owes more than the value of his home.
John has experienced a drop in property value and has not been able to refinance. He’s behind on his mortgage payments and has no assets to alleviate his debt. In addition, he has lost his job and is suffering financial hardship. John wants to avoid foreclosure and asks his lender to help him with a short sale.
Based on his financial health, the lender agrees to a short sale whereby the lender will take less than the value of the home. John and the lender work together to list the home for a determined amount.
Although John will lose his home, there are several benefits to liquidating the property and walking away, specifically:
- Eliminating your remaining mortgage debt
- Avoiding the negative impact of foreclosure
- Receiving relocation assistance
- Repairing your credit sooner than if you went through foreclosure
What is a Short Payoff?
Like a short sale, a “short payoff” is when a lender agrees to accept less than the mortgage’s full balance as payment in full for the debt. The financial health of the homeowner, however, is quite different.
Here is an example. Joseph owes $650,000 on his mortgage. Joseph’s home is valued at $525,000. Joseph is also “upside down”.
Joseph has experienced a drop in property value. He’s current on his mortgage payments, has steady income and good credit. He also has good financial resources. Joseph negotiates with the lender to take less. Joseph is now able to walk away from the property with little or no damage to his credit score.
Joseph also has the option to retain the property. Since he has good financial resources and has the ability to pay, he may be able to negotiate a lower amount with the original lender and then refinance through a new lender.
The downside to short payoffs is that not all lenders are amenable to the idea and they become difficult to negotiate.
Stuck in a situation and need help? Let us help you determine the right option for you and help you navigate the process!
