Las Vegas short sale vs loan modification

Help Stop Foreclosure Las Vegas

Loan modifications and short sales are two ways to potentially avoid foreclosure on your home.

What’s the difference?  And what are the pluses and minuses of each option?

Loan Modification – Loan modification means negotiating with your bank or mortgage lender in order to change the terms of your loan so that you can continue to make payments and keep your home.  Maybe you get a lower interest rate.  Maybe stretching out the payments so you pay less each month.  Maybe the bank wipes away some penalties for late payments.  Maybe they even reduce the principle.

Short Sale – A short sale occurs when you sell your home for an amount that’s less than the outstanding balance on the mortgage, but the bank forgives the whole amount.  This is happening a lot these days, especially in Las Vegas, where people can’t make their mortgage payments in areas where housing values have declined significantly.  The bank essentially says that it’ll take what it can get if you can sell the house for a half-decent amount and it’ll call things even.

So which one is better?  Obviously if you want to keep your house without filing for bankruptcy, then loan modification is the way to go if it’s an option.  (If it’s not, then Chapter 13 bankruptcy is of course another option.)

And if you don’t feel you can keep up with payments and just want to wash your hands of everything, then the short sale is the better option.

But let’s look a little closer at some of the other upsides and downsides of the two options.

Loan Modification

Upside

• Halts the foreclosure process
• You don’t need to worry about relocating or finding a new place
• A little breathing room with reduced monthly mortgage payments
• Credit score not lowered as much as it would be with a short sale or bankruptcy filing

Downside

• Maybe reduced monthly mortgage payments isn’t enough to keep you above water
• It’s only a short term solution.  Reduced payments often last for a limited time period before you have to go back to the original payment schedule
• If you miss any payments under the modified loan terms, the lender will likely initiate foreclosure hearings again

Short Sale

Upside

• Once you complete the transaction, that’s it, you’re done.  No more monthly payments.
• Bank will often be willing to cut its losses and forgive the outstanding balance on the mortgage if you can sell it for a reasonable price

Downside

• You need to move and find a new place to live.  In addition to the stress and costs of moving, a history of not being able to make your payments on your mortgage may make landlords more cautious about renting to you.
• If the bank reports its loss to the IRS, then it can be interpreted as income for you which you might have to pay taxes on.  (i.e., If someone loans you $100, you don’t have to pay taxes on it.  If someone gives you $100, that’s income and you do have to pay taxes.  If someone loans you $100 and then tells you you only have to pay back $70, then they in essence gave you $30 of income, which is taxable.)
• No chance of getting a mortgage again for at least the next several years.

Hopefully this helps you understand some of the tradeoffs and consequences of each option.  And of course, if you have more questions or want to understand all of your options, it’s always good to consult with a bankruptcy attorney in Las Vegas.

Feel free to get in touch with us for a free consultation whether you need help or advice regarding loan modification, short sales, foreclosure, Chapter 7 bankruptcy or Chapter 13 bankruptcy.  Freedom Law Firm is a great source of bankruptcy information in Las Vegas, whatever your question or concern.