Many comparisons have been made between the economic decline associated with the current COVID-19 pandemic and that of the 2009 Financial Crisis. Over ten years ago, the real estate industry took a huge hit, and, like most other sectors of the economy, it is once again experiencing economic stress.
But there is good news for homeowners whose income is, or will likely be, at risk.
There are steps you can take to weather the economic ramifications of COVID-19.
“Do your best to comply with your credit responsibilities, and this includes your mortgage,” says Alexander Villegas, CEO and founder of Premier Capital Solutions.
PCS is a known leader in loss mitigation with eight offices nationwide that provide comprehensive real estate services.
“If you think there is even a chance you could default on your mortgage, get in touch with your lender.”
Homeowners experiencing financial hardships should take action early by discussing home retention options with their lender. Missed mortgage payments don’t automatically predict foreclosure. In fact, says Villegas, there are multiple ways to stave off foreclosure. These include:
- Home retention options: You can work with your lender to formulate a plan to repay any missed payments or modify your mortgage payment. This allows you to remain in your home during a temporary financial hardship scenario. Homeowners are often eligible for a forbearance, reinstatement, or modification plan.
- Home liquidation options: If you can no longer afford your home, it must be sold or is at risk of being repossessed (subject to foreclosure) by the bank. However, with a short sale, the mortgage lender allows you, the borrower, to sell the house for less than the amount owed on the mortgage. For instance, if a defaulted borrower has an unpaid mortgage obligation of $100,000 on a home valued at $80,000, the lender may opt to forgive the $20,000 difference.
The benefits of a short sale are many
1. Short sales are typically far less damaging to your credit score compared to foreclosure
Foreclosures are a matter of public record and remain on your credit for seven years. If you have lost your home to foreclosure, the negative impact may prevent future home purchases and employment.
Short sales, however, are not recorded as public record. If you have gone through the short sale process, you can often apply for a new loan between one and two years after the short sale.
2. You, the borrower, are often released from judgment on the deficiency
The deficiency refers to the difference between the portion of the mortgage that you have already paid and the unpaid amount that the bank forgives.
Deficiency judgments vary from state to state. So, make sure you are aware of your state’s ruling when you are going through the short sale process.
3. You, the borrower, can avoid eviction
A short sale allows time to prepare. You can remain in the home during the short sale process.
4. Short sales often include a relocation settlement
“A relocation settlement is seed money to help get you back on your feet again,” says Villegas.
Moving takes disposable income. Villegas says that a majority of Premier Capital Solutions’ transactions include relocation settlements, with clients securing anywhere from $1,000 to $3,000+ to help with relocation and credit repair.
Ultimately, you will rebound financially much, much faster with a short sale than if you let the situation deteriorate into foreclosure.
If you are a homebuyer interested in a property that is being sold as a short sale, no worries.
“Once we get the short sale approval from the lender, the sale of the home is as close to a conventional sale as you can get,” says Villegas, who, upon collecting the required short sale documentation, receives short sale approval within 28 days on average.
And if you are an investor, short sales are savvy buys because they have the potential to be purchased below market value, Villegas adds.
Short sales help you avoid foreclosure. A kwELITE agent can show you how to save money by guiding you through a short-sale.