Short Sales, Foreclosures and Forbearance oh my!

There has been so much misinformation being presented lately. I wanted to take a moment to touch base on some of the buzzwords you may see flying around, as well as dispel some of the myths.

Terms Defined:

Short Sale: A short sale is when a financially distressed seller makes an agreement with their lender to sell a home at an amount that is less than what is owed to the bank. All proceeds will go to the lender, no repairs will be made and the biggest myth of them is it is not necessarily a deal, it is being sold at less than the amount owed, not necessarily below what it is worth. A short sale is reported to credit as a charge off and the negative effects can stick around for up to 7 years for the seller, although with diligent work many people are able to purchase a home again within 2-3 years after this.

Foreclosure: This is the legal process where a lender will attempt to recover the balance of a loan by forcing a sale after a borrower has failed to make payments. Contrary to popular belief, most banks truly do not want to do this and it is used as a last resort, the bank will rarely make a full recovery. In addition once they have gone through the process that can take years, they are wholly responsible for maintaining all financial and safety aspects of the home. Banks truly do not want the responsibility if there is another reasonable option.

Forbearance: The definition of this is literally - patient self-control. Although if you are struggling this is absolutely an option to consider, it does have negatives. In forbearance your lender will allow you to pay no or reduced payments for a period of time. However, at the end of the term that full amount of all payments comes due all at once. Additionally, many lenders will not allow you to refinance or get a new mortgage within 1 year of forbearance, so rolling that ballon payment back into the loan may not actually be an option. The impact to your credit is a bit of a grey area at the moment, but renegotiation of the payment of debt is highly likely to negatively impact credit.

One thing to consider with all of this is: most homes currently have equity! This is a huge benefit as it opens up for more options to do a cash out refinance to take advantage of the lower interest rates we are seeing and allow for having cash on hand to navigate these trying times. Or if you decide that selling may be the best option, this would allow you to bring your home to market and typically make a profit.

My best advice is Don't Panic! With so many options, we can absolutely help you navigate these challenging times. As San Diego home prices continue to rise with tons of demand and not enough homes to meet it, all signs point towards our housing market staying far more stable than the click-bate headlines are looking to show.

Make it an Epic day!

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