Short sale proceedings come with some drawbacks to consider as well. Consider the following cons before deciding to go this route.
Con #1: Credit Damage Still Occurs
Although homeowners may find a short sale to be less damaging to credit than a foreclosure, credit damage still occurs with this option. A shortsale is generally documented on your credit, although it does not have the same impact as a foreclosure would. Going this route will still make it more difficult to get credit in the future until measures are taken to rebuild your credit.
Con #2: Proof of Hardship Must Be Shown
Another con of the short sale route is that sellers must be able to show proof of hardship. The proof needed can require quite a bit of paperwork and involves allowing the lender to examine various personal records, including assets and liabilities, bank accounts, tax returns, pay stubs and more. Some of the common hardships that are accepted by many lenders include job loss, divorce and prolonged illness.
Con #3: Short Sales Can Take Time
Unlike their name, these transactions are often anything but short, which can be another drawback for homeowners. The process requires significant paperwork and several steps, which can take some time. Since many individuals are seeking this route right now, the process is often a bit backlogged with lenders. Carefully compiling important paperwork and submitting forms on time can help sellers navigate this process more quickly.
Con #4: Short Sales are Not Always Accepted
Lenders do not always accept short sale transactions, which homeowners must keep in mind when considering this route. Although more lenders are becoming willing to go through with shortsales because they have realized they often save money this way, lenders are not required to approve these sales. It is possible that a homeowner’s request to go through with a short sale will be denied.
Con #5: Lenders May Still Require Payment on the Amount Still Owed
Even if lenders do permit a short sale to go forward, once the sale is complete, the lender may still require payment on the amount that is still owed on the home mortgage. The leftover debt does not have to be forgiven by the bank. They can ask homeowners to pay back the difference between what is owed and the sale price. While this is a possibility, in many cases it is possible for sellers to negotiate with lenders to have the rest of the debt forgiven.
While short sales come with both pros and cons and there are no guarantees that the bank will approve the transaction or forgive the leftover owed debt, most homeowners choose this option because they believe it still offers a better alternative to foreclosure. Of course, every individual situation is unique.
While it may appear that the pros outweigh the cons, homeowners may want to consult with professionals before deciding whether a short sale is indeed the best option or whether they should allow the home to go into foreclosure.