I’ve had multiple clients attempt loan modifications without any cooperation from their various lenders.  So, where do you go from there?  One possibility is to put the home on the market and attempt to negotiate with the lender or lenders involved to sell short of what is actually owed on the home.  This takes some extra paperwork and extreme patience.  But, this type sale can minimize the damaging impact to your credit and can lessen your financial exposure and liability.  A foreclosure can remain on your credit for up to seven years while a short sale usually gets reported as a “settled debt” and is significantly less damaging.  With a short sale, your FICO score will not be as negatively impacted as it would be with a foreclosure, and you will be able to get into a new home sooner.  As with foreclosure, there are several potential tax and liability considerations when doing a short sale or loan modification, however, they are typically less severe than they would be with a foreclosure.  Seeking qualified advice from your CPA or tax attorney is suggested.

Why would a lender agree to a short sale?  In most distressed mortgage situations, foreclosure is a last resort for all parties involved.  Both the homeowner and the lender usually want to avoid foreclosure at all costs.  That is why lenders have come up with various alternatives to foreclosure.  A short sale gives the lender the ability to cut its losses upfront, thereby avoiding the expense and time of a foreclosure and potentially greater losses.  Lenders want to make loans; they do not want to be in the business of owning and managing real estate.  In may cases, a short sale offers a better return on the lender’s investment than a foreclosure.

As a seller, you must first authorize your Real Estate agent to speak and negotiate on your behalf.  Next, some time should be spent composing a sympathetic “hardship letter” to explain the circumstances that force the sale.  This is your opportunity to appeal to them.  You will possibly be asked to corroborate your hardship with financial statements and other verifications.  Your Realtor should be experienced in the procedures and able to be your guide throughout the process.

Next will be the really hard part; that is divorcing yourself from the transaction and your attachment to the home or the “value” of the home.  This is going to be a sale that “sells short”.  The ultimate price that ”our present real estate market” will accept is not a reflection of the quality of the home or love and attention you once gave your home.  And, it is not a reflection on you, as a person.  You are simply another person who is traversing a new terrain.  One that, very often, was not precipitated by you…rather one that was created by outside circumstances!