Foreclosure, Deed in Lieu, Short Sale - What's the Difference?

When a Walworth County homeowner cannot make their agreed upon mortgage payments, there are three common outcomes: The bank could foreclose on the home. The homeowner could sign a Deed in Lieu of Foreclosure or the homeowner can try to sell the home (a short sale). Of course, these three processes and terms make perfect sense to those in the real estate, law, or the banking industry. However, a homeowner needs to know the difference, and in plain English. Below we have explained foreclosure, deed in lieu, and short sale.

Walworth County Foreclosure

Basically, foreclosure is a legal process in which the bank or lending institution attempts to recover the balance owed from the homeowner who has stopped making the agreed upon monthly payments. Foreclosure can be a lengthy process, taking anywhere from 9 months to several years to complete. It can take anywhere from 2-6 months (or more) of missed payments before the bank will file the foreclosure lawsuit with the court and will serve the homeowner with foreclosure paperwork. After the homeowner is served the foreclosure paperwork, he or she has a short period of time to hire an attorney and file an Answer or the homeowner can file an Answer him or herself. While the foreclosure is pending, the homeowner can try to work with the bank to get current, sell his or her home, or entering into a new, more affordable loan with a modification or refinanced loan. Most counties, including Walworth County, offer foreclosure mediation. If no arrangement is made between the bank and the homeowner, a Notice of Public Auction will be posted and the home is sold at a Walworth County Sheriff’s Sale. If a third party person or entity does not buy the property at the Walworth County foreclosure auction, the mortgage lender will buy and the home and it will be listed as a “bank owned property,” by a local real estate office.

Walworth County Deed in Lieu of Foreclosure

Deed in what? That’s what most people say. A Deed in Lieu of Foreclosure is simply a document a homeowner signs with your lending institution stating that both parties agree that the bank will take back the property in lieu, or instead of, going through the foreclosure process. There are many advantages to signing a Walworth County Deed in Lieu, such as: A Deed in Lieu of Foreclosure looks better on a homeowner’s credit report. A Deed in Lieu of Foreclosure saves the bank money it would have spent on an attorney and filing fees during a Walworth County foreclosure process. It’s pretty much a homeowner’s way of saying, “I can’t make these payment anymore.” And, the bank says, “Okay. We understand. We will take the home (your loan collateral).” The Walworth County property deed then goes into the bank’s name and the homeowner is no longer the owner of the home or is responsible for the mortgage payments. Usually, the bank will work with the homeowner to set a date in which the homeowner is to move out of the property.

Walworth County Short Sale

The definition of a short sale is the sale of a home that is sold for less than the mortgage amount that is due and owing. Let’s say you own a Walworth County home and you owe $145,000 on your mortgage. You have the home up for sale. An offer comes in for the home asking you to accept $100,000 for the purchase of the home. Since you owe $45,000 more than the offer price, the bank has to agree to accept this offer to sell the home. If the bank agrees to the sale, the bank may not pursue the homeowner for the $45,000 or the bank may preserve its right to sue the homeowner for the $45,000. Therefore, it is important to understand the bank’s intention before agreeing to a short sale.

If a Walworth County homeowner is behind on mortgage payments and wishes to no longer try to keep their home, the above three options are to be considered: going through the foreclosure process (the real benefit is staying in the home another 1-2 years before the homeowner would have to leave), signing a deed in lieu of foreclosure (this looks better on a credit report and saves the bank money too), or putting the home up for sale and hoping the bank will accept a short sale of the property (this option works well when the homeowner has the time to sell the home). Each circumstance is unique. Walworth County homeowners should seek the advice of a qualified and experienced Walworth County Real Estate Attorney who can better determine which options are best for their situation.

If you need real estate or foreclosure assistance in the Walworth County area, please contact Wynn at Law, LLC. We can represent you in a Walworth County foreclosure matter and/or advise you of the best options for your specific real estate situation. Contact us today for a consultation at 262-725-0175.