Why would you do a short sale of your home?
1. Can’t Afford Your Home
If your income has decreased or your mortgage payments have increased and you, therefore, can’t keep making your payments, you may want to downsize. You most likely want to rent. If your home is worth less than your mortgage balances, you won’t be able to sell your home. In any case, a short sale may be the way to go.
Rental payments have increased in the last few years. This is mostly in part to a lot of people losing their homes to foreclosures. The job market also plays a role in this as more and more young people are having a hard time finding a job as well as their high student loan debt. This demand to rent has obviously increased the cost of rent.
Due to increasingly tight credit standards, if you move out of this home, it will likely be a long time before you can buy another residence. Property values have skyrocketed in many areas of the country, and they don’t seem to be lowering any time soon. If you can catch up on payments, you can continue to build equity in your home and your family might be better off not moving or switching your children’s school district. Therefore, if there were a way to maintain payments on your home, it would be worth considering that option.
2. Can’t Reduce Mortgage Payments
In many, many cases, whatever your first mortgage payment is is usually what you will have to keep paying. If you are behind, you must catch up to keep your home.
You might be able to strip a second or third mortgage off your home’s title if you have them. Therefore, you wouldn’t have to make that mortgage’s monthly payments. Under the Chapter 13’s “adjustments of debts,” you can get rid of these second or third mortgages if your home is worth less than the balance of your first mortgage. Therefore, there is no equity at all in your home for this second mortgage.
By getting rid of this second mortgage, your debt on that mortgage becomes an unsecured debt, similar to your credit cards and medical bills. This means you will pay this between years 3 and five under Chapter 13. You will pay only as much as you can which is usually peanuts, sometimes nothing. Whatever hasn’t been paid by the end of this time is discharged and legally written off.
As a result, you avoid having to pay the monthly payments for the second mortgage and, therefore, the debt against your home will be significantly decreased. This makes keeping your home more in your interest. Other benefits of Chapter 13 will also make keeping your home financially feasible in the short run and sensible in the long term. In any case, each month, you will pay less for a home that has less debt on it.
3. Resolve Other Liens
You may feel pressured to do a short sale because of your mortgage obligations as well as other responsibilities that are attached to your home’s title. This includes
- Tax Lien
- Judgment Lien
- Support Lien
- Utility Lien
- Construction Lien
You may feel like you have to pay on or more of these legal obligations. All collection agencies including the IRS, state tax and child support agencies can be antagonistic in attempting to collect their money. Understandably, you might be feeling a lot of pressure to do a short sale on your home to pay that scary creditor.
Here’s the problem:
The more lienholders you have, the more creditors have to be forced into accepting that they will receive less than the full balance of your debt for them to release the lien on your home. You will likely continue being pursued for money and have to owe the balance even if the lienholder releases their lien for less than expected so that you can achieve a short sale.
Under Chapter 7 or Chapter 13 bankruptcy, you can usually avoid these judgment liens. Chapter 13, in particular, is great for attacking tax and support liens along with their debts. You can also be protected for years from any further collection efforts that might be made.
In conclusion, bankruptcy can often give you control over your home and financial world than you might have expected. This is often a better option than a short sale. You should contact a bankruptcy attorney and discuss your options!