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Should I seek a loan Modification or short sale?

We live in turbulent economic times. We are all mitigating our cost from the cost of milk to the cost of gas. For many of us the decisions are more extreme than milk or gas instead it has become a matter of “Should I modify my loan/mortgage? or should I sell my property through a short sale?”

A loan modification is when your Lender agrees to change the terms of your loan. For example, you are delinquent and owe your Lender three months of payments totaling $9,000.00 and your interest rate is 7.75%. After a review of your account your Lender agrees to bring your account current and reduced your interest rate to 6.25% thereby allowing you to retain ownership of your property.

Conversely, a short sale is when your Lender agrees to allow you to sell your house for an amount less than what you owe the Lender and forgives the difference from you personally. For example, you are delinquent but your realtor found a buyer who wants to purchase your home for $375,000.00 but you owe the Lender $430,000.00. After a review of your account, your hardship, your personal finances, and the contract of sale, the Lender will permit you to sell the property to that buyer for $375,000.00 thus sustaining a $55,000.00 loss.  However it is important to note that both choices have their pros and cons that you must be fully aware of in order to make an informed choice. Although a loan modification allows you to remain in your house, your Lender will not readily modify your loan if you simply cannot afford the house or your Lender will require a probationary period in which you must demonstrate you can carry the new monthly mortgage. ie. no late payments.

Under a short sale you eliminate the debt and eliminate a foreclosure indication on your credit report, but you must sell your home and not make a profit. In a short sale, your Lender contends that you too must lose money if the bank is losing money. Therefore, whatever equity, if any, that you have you will lose in the sale.

Although no one knows what our economic future holds - both choices can allow you an opportunity to exhale and readjust your financial situation in very turbulent times.