“My house is in foreclosure. I’m considering 3 options: Short sale, deed in lieu of foreclosure and last bankruptcy chapter 7. What are the pros & cons with respect to this kind of situation?” – Dan
Facing the prospect of losing your home? It is a challenging experience, and no one must have to navigate the process alone. If you resonate with Dan’s situation, we are here to help. Dan has a very genuine concern and is already considering a few options for his unique circumstances. Let’s explore those avenues and find a path that aligns best with the current needs.
Short Sale – A Stepping Stone to Recovery
A short sale involves selling your property for less than the amount owed on the mortgage. We’ve personally seen many of our former clients benefit from this option.
Pros
- A short sale can allow you to purchase a new property in as little as two years.
- You get more control over the sale of your home.
- Lenders, too, might be willing to negotiate on debt relief.
- Of all the options, a short sale is generally the least damaging to your credit score.
Cons
- Success in a short sale often depends on your ability to negotiate with multiple lenders.
- It can be especially tough if you have more than one mortgage, and the subsequent lenders might ask for some money to agree to the short sale.
- You might owe the remaining amount if the sale doesn’t cover your mortgage balance.
Deed in Lieu of Foreclosure – A Tougher but Viable Option
This option involves transferring your property back to the lender before foreclosure. But, it requires a deeper understanding of the lender’s requirements, detailed agreements, and potential negotiations.
Pros
- It offers a quicker resolution than foreclosure.
- You can avoid the stigma and credit impact of a full foreclosure.
- The lender might forgive any remaining debt on the mortgage.
- Your credit report will show a property transfer, not a foreclosure, which is less damaging.
Cons
- Many lenders find deed in lieu agreements burdensome and full of potential errors, and they prefer to proceed with foreclosure.
- There can be tax consequences for the forgiven debt.
Bankruptcy – The Last Resort
Bankruptcy is a legal process that can absolve you of liability on your mortgage. It’s a ray of hope in dire financial straits.
Pros
- Once you qualify for bankruptcy, you’re free from mortgage debt.
- Some of your property may be exempt from liquidation.
Cons
- It still negatively impacts your credit score for up to 10 years as you have both bankruptcy and foreclosure on your report.
- Your ability to purchase a new home gets delayed.
Making the Right Choice
Each of these options has its unique set of challenges and benefits. The best choice depends on your specific financial situation and long-term objectives. We highly recommend you consult a lawyer specializing in bankruptcy to get tailored advice for your situation.
At Westgate Law, we’re committed to helping you navigate tough decisions with empathy and expertise. Remember, what’s right for one person might not be right for another. We encourage you to consult our knowledgeable Los Angeles Bankruptcy attorneys to find the best path forward for your situation.
Schedule a Consultation Today
Navigating the complexities of home loss is daunting. But you do not have to go at it all alone. At Westgate Law, we can provide you with the guidance and support you need and deserve. Call us at 800-891-1995 today to pave your way towards financial recovery.