Short sales viable option for families heading for foreclosure

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Posted Sat, Feb 27, 2010

An all too familiar sight in today's real estate market also affecting homes in Wash Park like this one.

DENVER-Admitting to economic hardship is difficult for anyone, and these days, much of the population is there.

So what do you do when you can’t pay for your house anymore?

Generally, foreclosure is the only way to go, but for some, there is another option.

“A short sale is when the bank agrees to take less than it is owed when a home is sold,” said real estate broker and Certified Distressed Property Expert Michael Carnahan.

A short sale proves to be more beneficial than a foreclosure for a variety of reasons.

“The primary benefit of short sale is avoiding foreclosure and being able to reestablish credit in a shorter amount of time,” Carnahan said.  “It shows responsibility on the part of the homeowner that they are doing their best to sell their home in spite of difficult circumstances.”

While short sales might seem like the right choice to avoid foreclosure, Carnahan does suggest taking caution.

“When people are in a bad position, they can be especially vulnerable to scam artists,” the realtor said.  “I always encourage people to contact a Real Estate Agent with the proper education and designations to best help them through the process.”

With no guarantees in a short sale as many still end in foreclosure, why would anyone want to go through the trouble of a short sale?

“We have been struggling financially for probably about 5 years, since we started caring for my mother-in-law and had children,” said Jenny Davis,* a wife and mother of two who currently has her home up for sale as a short sale.

“When my husband lost his job about a year ago, he ended up getting a job for a lot less money,” she said.  “We really struggled to pay our mortgage.”

While trying to correct their credit and financials, they went through a bankruptcy but their shift in income was too heavy.

“We finally decided that we just could not afford the mortgage,” the mother said. “When we heard about short sales, we decided that was the best decision for us, at least a better option than foreclosure.”

Bank manager Chris Hardenberger sees families in all sorts of circumstances that go through short sales, especially in today’s economy.

Homes are for sale all over Denver and will do everything they can for a sale.

“There are family issues like a divorce or someone’s health that is causing them to relocate,” Hardenberger said.  “Or even a two income household that has to go down to one.”

So when you are going through financial hardship and you want to choose the best direction to go in with your house, which way do you go?

“I think that it is something where people have to weigh the situation themselves,”  Hardenberger said.  “One woman I know was forced to get a short sale because of a divorce.  Her credit has been marred and it’s hard for her to get an apartment.  Is she in a better situation?  Probably her family situation, but there are repercussions for doing a short sale and people should realize that.”

Carnahan suggests seeing a CPA to all of his clients before going through a short sale.

“In general, a short sale will be much better on your credit rating than a foreclosure,” the realtor said.  “However, a short sale can have negative tax consequences, in that the forgiven debt can be taxable as income.”

Though Davis felt that a short sale was their last, and only, option, she is feeling the weight of the decision.

“The problem we are having now is that our credit is so bad, from bankruptcy and missed house payments, that people don’t want to rent to us,” the mother said.  “It is going to be hard work finding a place to live when and if our home sells.”

*Jenny Davis is an alias for the homeowner who preferred to keep her name

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