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When it comes to distressed properties in Connecticut, understanding the ways short sales are better than foreclosures is crucial for homeowners facing financial hardships. While both options may arise in challenging circumstances, they present distinct paths with varying consequences.
What Is A Foreclosure In Connecticut?
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 recover the money that they lent you to buy the home
A home is usually subject to foreclosure when a borrower becomes unable to fulfill their mortgage payments. In such cases, the lending institution takes over ownership and possession of the property, resulting in the eviction of the borrower. These properties are subsequently sold either through auctions or traditional channels with the assistance of real estate agents. Foreclosure can have a detrimental impact on the borrower’s credit rating, making it exceedingly challenging to secure a mortgage for an extended period.
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. Here in Connecticut you can check out the Connecticut Laws About Foreclosure.
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, which is a type of loss mitigation, is a sale of your home for less than what you owe on your mortgage.” (source: Consumer Finance Protection Bureau)
Sometimes, borrowers and lenders may consider a short sale as an alternative. In a short sale, the home is sold for an amount that is less than the remaining balance on the mortgage. Whether the borrower is still responsible for the unpaid balance, known as the deficiency, depends on the circumstances.
The process of a short sale often involves multiple lending institutions if there are several mortgages on the property. All parties with a vested interest in the property must reach an agreement on the sale terms. If even one lender disagrees, the potential deal may not proceed as planned. It’s important to note that reaching a consensus among all involved parties can take a long time.
Short Sale vs Foreclosure – Your Options
Although both options carry consequences, a short sale generally has a lesser impact on the borrower’s creditworthiness compared to a foreclosure. Foreclosure can significantly lower a borrower’s credit score by 300 points or more, whereas a short sale might result in a credit score decrease of around 100 points.
Borrowers who undergo foreclosure often face up to and sometimes over 7 years before they become eligible for a conventional mortgage to purchase another home. On the other hand, in certain situations, a borrower who goes through a short sale may be able to purchase a new home almost immediately.
As many Americans struggle with high inflation, rising unemployment, and rising interest rates, 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 Connecticut 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. It is advisable to always have a conversation with your lender and explore potential solutions for your loan-related challenges. The worst thing you can do is ignore them hoping the problem will go away. You never know what a lender might say. They might be in a situation where they will work with you on the terms of your mortgage or do a short sale. But you won’t know if you don’t ask.
- Attempt a short sale or 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. It is always great to hear when a homeowner is able to save their house, their credit and keeping themselves from a terrible situation because they were able to work with their lender.
- If the bank isn’t willing to work with you very much… your best option may be to sell your house. Maybe it’s because you didn’t find our site in time to give you these helpful tips. Maybe the lender is in a tough situation themselves. They are already starting on the foreclosure. This is when you should work with a local real estate house buyer service like Next Door Properties 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 >>
- Foreclosure. Allowing the house to go into foreclosure should be considered as a last resort, as it represents the most unfavorable outcome. This course of action can have severe consequences, negatively impacting your credit rating for up to 7 years. Furthermore, even after the foreclosure process is completed, there is a possibility that you may still owe money to the bank. It is crucial to explore alternative options before resorting to foreclosure.
Knowing and understanding your options can make a world of difference when it comes to safeguarding your credit score and positioning yourself for a brighter future. With the right approach, you can potentially sidestep a significant blow to your credit and open the door to purchasing a new home when your circumstances improve. However, it’s crucial to recognize that a foreclosure can severely hinder this possibility for a substantial period of up to 7 years. Given the chance, a short sale emerges as a more favorable alternative, offering you a better chance at preserving your creditworthiness and paving the way for future opportunities in the housing market.
By opting for a short sale, you demonstrate a proactive approach in managing your financial situation. This decision can minimize the long-term repercussions on your credit score, giving you the opportunity to rebuild and recover more swiftly. Instead of being trapped in the shadow of foreclosure, a short sale empowers you to take control and navigate towards a more promising future. Don’t underestimate the potential benefits of exploring this alternative—it could be the key to securing a fresh start without the burden of a foreclosure looming over your financial prospects.
Have a pending foreclosure? We’d like to make you a fair all-cash offer on your house.