Ten Reasons Why A Short Sale is Better than a Foreclosure
1. Property owners with Fannie Mae mortgages lost to foreclosure are ineligible for another Fannie Mae mortgage for 5 years. With a short sale, the ineligibility period is only 2 years.
2. Investment property owners with Fannie Mae mortgages lost to foreclosure are ineligible for another Fannie Mae mortgage for 7 years. With a short sale, the ineligibility period is only 2 years.
3. Future mortgages will be affected as the applicant will have to answer YES to question C in Section VIII of the standard 1003 that asks ?Have you had property foreclosed upon in the last 7 years??. There are no questions regarding short sales.
4. Credit scores may be lowered from 250 to over 300 points for 3 years or more as the result of a foreclosure. Typically, only late payments are shown with a short sale and the mortgage is reported as ?paid? or ?negotiated?. The impact can be as little as 50 points and often lasts for only 12 - 18 months.
5. Foreclosures are ?public record? and can remain on one?s credit history for 10 years or more. Short sales are not reported on credit history. There is no specific reporting item for a ?short sale? and the loan is usually reported ?paid in full, settled?.
6. With the exception of a felony conviction, foreclosure is the most challenging issue against receiving a security clearance. Prior clearance can be revoked resulting in job termination. A short sale alone will usually not challenge a security clearance.
7. Employers can and do regular credit checks of employees. A foreclosure is often enough for immediate reassignment or termination. A short sale is not reported on a credit report and therefor will not be a challenge to employment.
8. Most employers require credit checks on all job applicants. A foreclosure is one of the most detrimental credit items an applicant can have and in most cases will challenge employment. A short sale is not reported on a credit report and therefor will not be a challenge to employment.
9. Except in states where there is no deficiency, the bank has the right to pursue a deficiency judgment in 100% of foreclosures. In a short sale, it is often possible to convince lenders to give up their right to pursue a deficiency judgement.
10. In a foreclosure, the property will have to go through the REO process if not sold at auction. This usually results in a lower sales price and longer time to sale in a declining market resulting in a higher deficiency judgement. With a short sale, the property is sold close to market value and in most cases higher than an REO sale resulting in a lower deficiency.
Options to Foreclosure
Foreclosure is one of the most devastating financial challenges that a family can face, and one that many times can be avoided.
The options available to residents for foreclosure are many, including but not limited to short sales. Following is a brief explanation of these solutions:
Reinstatement is the simplest solution for a foreclosure, but often the most difficult. The homeowner simply requests the total amount owed to the mortgage company to date and pays it. This solution does not require the lender's approval and will 'reinstate' a mortgage up to the day before the final foreclosure sale.
Forbearance or Repayment Plan
In a forbearance or repayment plan, the homeowner negotiates with the mortgage company to allow them to repay back payments over a period of time. The homeowner typically makes the current mortgage payment, in addition to a portion of the back payments owed.
A mortgage modification reduces one of the following: the interest rate on the loan, the principal balance of the loan, the term of the loan, or any combination of these. This typically results in a lower payment to the homeowner, and a more affordable mortgage.
Rent the Property
A homeowner who has a mortgage payment low enough that market rent will allow it to be paid, can convert their property to a rental, and use the rental income to pay the mortgage.
Deed-in-Lieu of Foreclosure
Also known as a "friendly foreclosure," a deed-in-lieu allows the homeowner to return the property to the lender rather than go through the foreclosure process. Lender approval is required for this option, and the homeowner must also vacate the property.
Many have considered and marketed bankruptcy as a "foreclosure solution," but this is only true in some states and situations. If the homeowner has non-mortgage debts that cause a shortfall of paying their mortgage payments and a personal bankruptcy will eliminate these debts, this may be a viable solution.
If a homeowner has sufficient equity in their property and their credit is still in good standing, they may be able to refinance their mortgage.
Servicemembers Civil Relief Act (military personnel only)
If a member of the military is experiencing financial distress due to deployment, and that person can show that their debt was entered into prior to deployment, they may qualify for relief under the Servicemembers Civil Relief Act. The American Bar Association has a network of attorneys that will work with servicemembers in relation to qualifying for this relief.
Sell the Property
Homeowners with sufficient equity can list their property with a qualified agent that understands the foreclosure process in their area.
If a homeowner owes more on their property than it is currently worth, then they can hire a qualified real estate agent to market and sell their property through the negotiation of a short sale with their lender. This typically requires the property to be on the market and the homeowner must have a financial hardship to qualify. Hardship can be simply defined as a material change in the financial stability of the homeowner between the date of the home purchase and the date of the short sale negotiation. Acceptable hardships include, but are not limited to: mortgage payment increase, job loss, divorce, excessive debt, forced or unplanned relocation, and more.
This represents only a summary of some of the solutions available to homeowners facing foreclosure. Locate a CDPE in your area for an evaluation of your individual situation, property value, and possible options.
Understanding your options now could mean all the difference in the world.
A CDPE can help.
Learn the Truth About Short Sales and Foreclosures