If you are having trouble deciding whether your property qualifies for a short sale or you want to stay in your home and request a mortgage modification, you should consult your attorney or professional advisor first. This article will give you some information to help educate yourself on the different options so that you are knowledgeable no matter who you decide to consult with.
Differences
Let’s briefly discuss the differences between a short sale and a mortgage modification. A short sale is when you owe more on your mortgage than your property is worth in today’s market. In a short sale situation, you decide to sell your home and the lender agrees to take less money than you owe on the loan. In a short sale transaction, normally you hire a Realtor to try and sell your home, negotiate with your lender and find your buyer. Of course, the lender must approve the offer and closing costs, which are usually presented on a HUD 1 closing statement.
A mortgage modification is similar to a refinance except that it is not a new loan. You are asking the lender to change the terms of your existing loan by modifying the interest rate, reducing your payments and/or extending the term of the loan. In a refinance, you are paying off the old loan with the new loan and you must have equity in your property. Mortgage modifications are not based upon your credit score like a refinance.
Most of the time to qualify for a mortgage modification you must be in default or behind in your payments and show a financial hardship such as loss of income, loss of job, death, divorce, etc. Mortgage modifications work best if you have a variable interest rate loan. Mortgage modifications can be negotiated by mortgage brokers and attorneys and some other types of businesses such as certified HUD home counselors. There are a lot of unscrupulous people trying to take advantage of distressed homeowners right now so check the credentials of the person who is helping you. If they ask for a large upfront payment (other than an attorney), they could be crooks so watch out. You can also try and negotiate with your lender on your own. Although I recommend hiring a professional to help you.
Similarities
Both short sales and mortgage modifications are ways to save your home from going to foreclosure. If the short sale, you are selling your home and walking away not owing the lender any money on the loan. In a mortgage modification, you are keeping your home and attempting to lower your interest rate and monthly payments so that you can afford them and keep your home.
Both take some time to get approved, and there is no guarantee that your lender will approve them. The processes are frustrating and can take anywhere from 30 to 90 days or longer.
The paperwork that the lender requests is also similar. In a short sale, the difference would be you have an offer to purchase your home and probably a listing with a Realtor which would need to be submitted and approved by the lender. Some of the other similar documentation that you will need to provide the lender in both a short sale and a mortgage modification are as follows:
- Authorization letter if you are using a third party such as a Realtor, mortgage broker or attorney to negotiate for you. The letter should authorize your lender to release your loan balance information to the third party and/or their employees.
- Hardship letter explaining the reason for your request.
- Last two paycheck stubs verifying income.
- Last two year’s tax returns.
- Last two years 1099 or W2 forms.
- Borrowers Financial Statement.
Both are options to consider if you are facing foreclosure. Other options may include a forbearance, deed in lieu of foreclosure, repayment plan and as a last resort a bankruptcy. If you are in default on your mortgage, your credit will have an impact but depending on which option you choose, it may be a lesser impact. Again, I recommend discussing these options with a qualified and reputable home counselor, Realtor, attorney or mortgage broker first before you make any decisions for your particular financial situation.
I need to unload a rental property that I no longer have income to put into nor can continue to make the mortgage payments. We tried selling it for a year without even one person calling for a showing. We dropped the price during that year by 15% but still no interest. It’s a good property but too many foreclosures and short sales out their for us to compete with at the time. We are now ready to compete and offer it up on a short sale…if it won’t sell or the lender won’t agree then it is going into foreclosure. Thank you
I am going through a very similar situation as yours. I had a rental property and my tenants bailed on me without any notice, and with over $5,000 in repairs needed. I needed to sell my property quick, however am in an area saturated with foreclosures and short sales. I obtained a great realtor, who specializes in the short sale market, and am still in the process of doing the short sale. Luckily she has been on top of the bank and it sounds like we might be getting close to getting our offer accepted. I have had a buyer who has stuck through this process for the past 4 months. We did have to request that we deal with another loss mitigator, being the previous one was very unresponsive. I should be hearing a response on if the short sale will be accepted within the next week. Just be sure to obtain a realtor who specializes in the short sale market and one who will follow up on a constant basis with the lender. Good Luck!