Short Sale vs Subject To – What’s the Difference in Springfield?

Whether you’re a buyer or a borrower/seller, a short sale, and foreclosure each present different advantages and difficulties. Why Selling your house Subject To might be a better option

Short Sale vs Subject To In Springfield, Massachusetts?

A short sale is a real estate transaction in which the lender agrees to accept less than the full amount owed on a mortgage in order to facilitate the sale of the property. In other words, the seller is “short” on the amount of money needed to pay off the mortgage, and the lender agrees to forgive the difference. Short sales are often used as a last resort for homeowners who are facing foreclosure.

On the other hand, a property that is “subject to” an existing mortgage means that the buyer is taking ownership of the property, but the seller’s mortgage remains in place. The buyer is not assuming responsibility for the mortgage, but they are still responsible for making the payments on time. This is different from assuming the mortgage, where the buyer takes over the mortgage payments and assumes the liability for the debt. Since we are investors, we are not moving in the property, so that is why we don’t assume the loan personally, but instead we get the Debt Serviced ( think of a 3rd party referee) which actually has several benefits to you.

In summary, a short sale involves the lender forgiving part of the mortgage to allow the sale of the property, while a property subject to an existing mortgage means the buyer takes over ownership of the property without assuming liability for the mortgage.

In simple terms… “A foreclosed home is one in which the owner is unable to make his mortgage loan payments and the bank repossessed the home” (source).  If you stop making your house payments… your lender has the right to foreclose on your property so they can attempt to recoup their money that was lent to you.  Here is where The Property Warehouse could come in and make the payments on behalf of the seller moving forward to prevent the Foreclosure & Short Sale outcomes. 

A home is typically foreclosed on when a borrower fails to make mortgage payments. The lending institution assumes ownership and possession of the property, evicting the borrower. These properties are then sold at auction or more traditional means utilizing the service of real estate agents. A foreclosure can damage the credit rating of a borrower, and make it very difficult to obtain a mortgage for many years.

Depending on the state that you live in… a foreclosure can work in different ways. Check out the foreclosure process information over here at the HUD Government website.

What Is A Short Sale?

In a short sale, the home is still owned by the borrower.

The definition of a short sale is… “short sale is a sale of real estate in which the proceeds from selling the property will fall short of the balance of debts secured by liens against the property, and the property owner cannot afford to repay the liens’ full amounts and where the lien holders agree to release their lien on the real estate and accept less than the amount owed on the debt” (source: Wikipedia)

In some cases, a short sale is an option agreed upon by borrowers and lenders. In a short sale, the home is sold for less than the outstanding balance of the mortgage. The unpaid balance (known as the deficiency) may or may not still be owed by the borrower.

This option typically takes some time, as a few different lending institutions may own the mortgage. All parties who have a stake in the property must agree to the terms of the sale, and a potential deal could fall through if even one lender doesn’t agree.

A short sale is better than letting the house get foreclosed on, but there still several consequences that come along with it.

Subject 2 Benefits – Your Options

While both options can have ramifications, a short sale often has less of an impact on the borrower’s creditworthiness. A foreclosure could impact a borrower’s credit score by 300 or more points, where a short sale may only dent the credit score by 100 points. Plus you have to factor in future tax liabilities that come with both of these routes. The government and banks usually do not just let you off the hook without future repercussions

Borrowers who are foreclosed on are often ineligible to purchase another home for 5-7 years with a traditional mortgage, where under certain circumstances, a short sale borrower can purchase immediately.

As many Americans struggle with an economy that has yet to completely recover from the 2008 crash, folks are having a hard time making monthly mortgage payments. Choosing between being a foreclosure and initiating a short sale (or a 3rd option…  selling your Springfield house fast  )is an easy choice for a borrower having troubles paying their mortgage on time.

Work with a company that can help you explore multiple options especially to prevent a foreclosure or short sale if that’s possible

Our suggestion is always this.

  1. Work with a company that specializes in several options to save your house from both a short sale & foreclosure route.. A company like the Property Warehouse could help you sell your house fast & continue making your mortgage payments on time every month moving forward. If you’re interested we can look at your situation and make you a fair offer on your house within 24 hours. Just fill out the form on our website over here >>

Here are some benefits of a “subject to” real estate transaction for the seller:

  1. Faster Sale: By selling the property “subject to” the existing mortgage, the seller can typically sell the property more quickly than if they had to wait for a buyer to obtain a new mortgage.
  2. Avoiding Foreclosure: If the seller is struggling to make mortgage payments, selling the property “subject to” the existing mortgage can help them avoid foreclosure and the associated negative impact on their credit score.
  3. No Need for Equity: In a traditional real estate transaction, the seller typically needs to have some equity in the property in order to cover the costs of selling, such as closing costs, real estate agent commissions, and repairs. In a “subject to” transaction, the seller can sell the property regardless of their equity position, as the buyer will be taking over the existing mortgage.
  4. No Need to Make Repairs: In a traditional real estate transaction, the seller may need to make repairs to the property in order to attract buyers. In a “subject to” transaction, the buyer is typically an investor who is willing to take on the property as-is, so the seller may not need to make any repairs.
  5. Potential for Higher Sale Price: If the existing mortgage has favorable financing terms, the property may be more attractive to buyers and may command a higher sale price. Additionally, if the seller is motivated to sell quickly, they may be willing to accept a lower sale price in exchange for a faster transaction.

It’s important to note that selling a property “subject to” the existing mortgage may not be the best option for all sellers, and it’s important to consult with professionals before making a decision. Additionally, the seller should be aware of the potential risks associated with selling a property “subject to” the existing mortgage, such as the possibility of the buyer defaulting on the mortgage and the impact on the seller’s credit score

By knowing your options, you may be able to dodge a significant impact on your credit score, allowing you to purchase a new home when your situation improves.

Have a pending foreclosure?  We’d like to make you a fair all-cash offer on your house.

Give us a call anytime at 203-635-5967 or
fill out the form on this website today! >>

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