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Is a short sale or foreclosure in your future?

When you bought your house, the mortgage payments were manageable. You may have had a smooth-running budget that allowed you to cover all your bills and even set something aside for home improvements in the future. However, as happens with many homeowners in New Jersey and elsewhere, something set you back. It may have been one major event like a job loss or a series of small expenses that quickly got out of control. Now you are behind on your mortgage.

It doesn't take much to fall behind on a large payment like your mortgage. Before you know it, you are thousands of dollars delinquent, and the mortgage lender is offering you the choice to try a short sale or get ready for foreclosure. Do you know which is best for you?

Understanding the difference

Foreclosure takes place when the mortgage lender takes back the house you borrowed money to buy. If you fall behind on your mortgage for more than a few months, you are in danger of foreclosure. When a bank forecloses on your home, they typically send you notice of their intentions with options for avoiding the process, including renegotiating your mortgage terms or taking out an additional loan to repay the delinquent amount. If the lender forecloses, your house will go to auction and the proceeds go to repay your debt.

A short sale occurs when you sell your house for less than you owe the lender. In order to make such a sale work, your lender will have to approve any offer a buyer makes that does not completely satisfy what you owe. In many cases, the lender is willing to agree to this because it saves the lender the time and expense of foreclosing on the property and auctioning it to recoup the loan.

Which works for you?

With both the foreclosure and the short sale, there is the danger that the bank will come back to you for a deficiency judgment. This means it may hold you liable for the difference between what you owed and what the bank gained through a short sale or foreclosure auction. To avoid this, you will have to request that your lender waive this right. It may not be easy to obtain.

In fact, if you are struggling to negotiate with your lender, or if you are out of ideas for getting free from your burden of debt, you may benefit from seeking the counsel of an attorney who can provide you with alternatives that may suit your situation, meet your goals and minimize any long-term negative consequences

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