If you are having severe financial problems and are unable to pay your mortgage each month, then you need to make a decision about how you will dispose of your home's mortgage debt burden. If you had a lot of equity in your home, then you could just sell it and pay off the mortgage. However, without equity you have an "upside-down" mortgage on your property, so, you do not have this option unless you can pay off the balance due on the mortgage when the home sells.
Since you are unable to fully pay off the balance of the mortgage on your home when it sells, you have two separate options:
- short sell your home
- let the bank foreclose on your home
Here is some information on each of these choices to help you make the decision which is better for your unique financial situation:
Short Selling Your Home
The better of the two options is to short sell your home before it becomes foreclosed upon by the bank. When you short sell a property, that means that you and the bank agree to sell it for less than the current amount of the mortgage, and the bank will not come after you for the balance due.
A short sale will negatively affect your credit score because you did not satisfy the terms of your mortgage that you agreed to when you signed the papers. But, the hit to your credit will not be as severe as with a foreclosure.
Letting the Bank Foreclose on Your Home
When you stop paying your mortgage payments, the bank will send you late notices, and after a certain time will file a foreclosure case with your local court system. If you do not bring the mortgage current by paying all of the past due amounts plus any fees, then the bank will process your home as a foreclosure and call in your mortgage and make it immediately due and payable. If you do not pay it off in full, then the bank will foreclose and legally obtain ownership of your home through the court system.
When your home is foreclosed upon, the difference between what your home sells for at auction and the balance due on the mortgage becomes your debt to the bank. The rules surrounding the collection of this amount vary from state to state. Additionally, a foreclosure is recorded on your credit report and your FICO score will immediately plummet.
For Additional Assistance and Advice
Before you make the decision to short sell or let your home be foreclosed upon, you should contact an attorney in your area that practices real estate law, such as Iannello Anderson. They are the best person to advise you about the potential ramifications of each choice, based upon your overall situation and state laws.