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Should one do Short Sale or let bank do the Foreclose

Sacramento, Oct. 26, 2010
Amarveer Dhillon

I found a very good and easy to understand article on the internet on the issue "Should one sell their home in Short Sale or let bank Foreclose", which is very easy to understand, and I want to share it with all friends. I know every family has a friend or relative that owns a home, that is upside down (Loan is much more that present value of their house). If your loan is just 5 to 10% more than the present value of the house, your should seriously consider talking to your bank (Lender) to modify the loan, but if your present home value is around 50% of the total Loan amount (1st & 2nd loan combined), and are unable to make the payments. You should seriously consider talking to an experienced Short Sale Realtor, to see if you qualify for a Short Sale, before the bank forecloses on the home.

Common Situation: My husband and I have been making our mortgage payments every month even though our home is underwater. We owe a lot more than our home is worth. The house income has reduced or a family member has to relocate to another location due to job. We're thinking about walking away from our home and letting it go to foreclosure, but my parents are telling us that we may qualify for a short sale. Which is better for us? A short sale or a foreclosure?" .

Answer: Whether you should do a short sale or let the home go to foreclosure depends on several factors. While for some homeowners, it is easier to throw up your hands and let the bank take your home, that might not be the wisest thing to do.

Please read below for your general knowledge about the impact of a short sale or a foreclosure in your future.

Disclaimer: All this information is for general knowledge only, Short Sale and Foreclosure rules keep on changing based on the new state and fedrel laws.

Please consult a CA Licensed Realtor (preferabally someone experienced or has done atleast a few Short Sales in the past few months) for specific answers to your situation or if you qualify for a Short Sale. Realtors generally provide this consultation for free.

You can also consult a Real Estate Attorney regarding to your situation, they generally charge about $300 to $400 per hour, and it may take several hours for them to study your full situation and give you advice on your situation.


Short Sale Benefits

Here are a few benefits for doing a short sale that may not have occurred to you:

  • You are in control of the sale, not the bank.
  • You will spare yourself the social stigma of the "F" word, foreclosure.
  • Your home sale will be handled like any other home sale.


Buying Again After a Short Sale

If your payments are in arrears and a short sale is granted by your lender. If you have other credits are in condition and are able to rebuild your lost credit score in the next 2 years. You may qualify to buy another home with a Fannie-Mae backed mortgage within two years, regardless of whether the home is your primary residence. The wait for FHA is generally 3 years.

Buying Again After a Foreclosure

With certain restrictions, you may be eligible to buy another home in 5 years if the home was your primary residence. Without restrictions, the wait is generally 7 years.

If you are an investor and do not occupy the home, the wait to buy with a Fannie Mae insured loan is generally 7 years.

Affects on Credit After a Short Sale

A short sale may be considered to be a derogatory mark on your credit even though credit bureaus do not show the word "short sale" on your credit report. It may say "paid in full for less than agreed" or "settled for less," among other categories. Some clients have reported negative FICO score drops from 50 points to 130 points.

Major point drops are typically due to being in default, meaning you have fallen behind on your payments.

Affects on Credit After a Foreclosure

A number of sources have reported FICO score drops from 200 to 400 points after a foreclosure. Generally this credit score will remain on your credit report as a public record for 7 to 10 years.

Credit Reports After a Short Sale

All lenders report short sales differently and some do not report them to the credit bureaus at all. Negative credit, however, stays on your report for few years.

Credit Reports After a Foreclosure

Negative credit, however, stays on your report for 7 to 10 years.
If a prospective employer runs a credit check on you, Some employers consider this very serious and sometimes your job application may be denied if you have a foreclosure on your record.

Deficiency Judgments After a Short Sale

Judgments are often negotiated between the seller and the short sale bank. In some cases, such as California, if the home is your personal residence and was financed through purchase money, there is no deficiency judgment.

Deficiency Judgments After a Foreclosure

Banks are unwilling to negotiate deficiency judgments with the homeowner after a foreclosure. In California, for example, according to the California Association of REALTORS, a deficiency judgment may be filed regarding a hard-money loan if the lender forecloses under a judicial foreclosure versus a trustee sale or if the second loan is a hard money loan and the sale takes place as a trustee's sale.

Loan Application Questions After a Short Sale

Loan applications do not ask questions about a short sale. You may report that you sold your home.

Loan Application Questions After a Foreclosure

You are required to answer the question: "Have you ever had a property foreclosed upon or given a deed-in-lieu thereof in the past 7 years." If the bank sees you have had a foreclosure, your loan most likely will be denied.

Length of Time to Move After a Short Sale

If you've had a foreclosure notice filed, you may be able to postpone that action while the bank considers your short sale. The wait for short sale approval can be from 2 to 3 months, or longer.

Length of Time to Move After a Foreclosure

Unless prior arrangements have been made, the bank may want you to immediately vacate the property and can commence eviction proceedings.

 

 

 


Amarveer Dhillon

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