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Differences Between Short Sales and Foreclosures
An overview of the differences between short sales and foreclosures and how an attorney can assist homeowners in each process.

Many Connecticut homeowners saw their home values decline sharply when the U.S. real estate bubble burst in 2005. According to data from CoreLogic, 13.1 percent of Connecticut homeowners are underwater in their mortgages, owing more to their lenders than what their homes are worth. Some homeowners, fearing foreclosure, are considering short sales of their properties as a way to extricate themselves from a difficult financial situation but are unsure how short salesdiffer from foreclosure.

Short Sale

In a short sale, the seller typically lists the property with a real estate agent, just as he or she would in a normal real estate sale. When a buyer becomes interested in the property and makes an offer, the seller needs to get the approval of the mortgage lender in order to close because the seller is accepting an amount for less than he or she owes on the property and lacks sufficient funds to close the sale. Unless the mortgage lender agrees to the sale, the sale cannot occur.

A short sale may be one way for a struggling homeowner who cannot make mortgage payments to get out of an underwater mortgage. However, homeowners can ask mortgage lenders to agree to a short sale even if the owners have never been arrears in their mortgage payments.

Foreclosure

When a homeowner falls behind on his or her mortgage payments, the bank may begin foreclosure proceedings by alerting the owner of the lender’s intent to foreclose at least 60 days prior to filing suit. The lender then begins court proceedings to foreclose In Connecticut, a judicial foreclosure state, the lender then begins court proceedings to foreclose. After the lender files suit, the court will either grant a “strict foreclosure” or “foreclosure by sale,” depending on whether there is any equity in the property.

An Attorney Can Help

Homeowners considering short sales would be wise to seek the advice of an experienced real estate attorney. The mortgage lender does not always release the homeowner from liability for the difference between the amount the owner sold the home and the amount the owner owed the lender on the mortgage. An attorney can help negotiate with mortgage lenders to reduce the amount the homeowner owes.

Homeowners facing foreclosure could also benefit from an attorney’s assistance. Mortgage lenders may obtain deficiency judgments in Connecticut for the difference between the amount the owner owed on the mortgage and the amount for which the lender was able to sell the home. An attorney can assist a homeowner with deficiency judgments. An attorney might also be able to help a homeowner prevent foreclosure through foreclosure mediation.

Keywords: foreclosure, short sale
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