Dec

The Difference Between a Short Sale and a Foreclosure

By Jerry

Sellers often ask me what’s the difference if they do a short sale or just let the bank foreclose? Most of the time property owner’s long term financial health is better off if they do a short sale. There are, however, some cases where the property owner’s long term financial health is better off by letting the bank foreclose or doing a bankruptcy.

Your current situation is temporary, your finances will change in the future, and the choices you make now can affect you long term. The most popular tools available to fix your situtaion include -

Short Sale
Foreclosure
Deed in lieu of foreclosure
Loan Modifications
Bankruptcy

Each of these tools will have a different impact on both your short and long term financial health. Don’t let the bank foreclose before you know the difference, and you and I talk about the details. My initial consultation is free.

A short sale occurs when you negotiate with the mortgage company to accept less than the full balance of the loan. When you consider a short sale or foreclosure you need to consider how they will impact the following items:

Credit History
A foreclosure will hurt your score by approximately 250 to 300 points for at least three years. In addition the loan will show on your credit report as foreclosed for 7 years.

With a short sale only the late or missed payments prior to the short sale will be reported, the points off your credit report can be far less, and if you make all you other payments on time the impact will only be 12-18 months. Furthermore, if the lender agrees to accept nothing more than the proceeds from the sale the loan is typically reported as “settled” or paid in “full”.

Getting a Mortgage in the Future

In addition to the difference in your credit score with a foreclosure you will not be able to get a Fannie May backed loan for 5-7 years, and you will have to answer yes to the question have you ever been foreclosed on. Having to say you have been foreclosed on will increase your future interest rates. With a short sale you will only be prevented from getting a Fannie May loan for 2 years, and you never have to answer yes to whether you have been foreclosed.

Security Clearances

With a foreclosure if you are a police officer, in the military, or any other position that requires a security clearance, the clearance will be revoked. A short sale on its own does not challenge most security clearances.

Remember my golden rule – friends don’t let friends get foreclosed on until after they have figured out if short sale can help them more. You cannot know what is best for you without knowledge of the following:

The AZ Deficiency Statute
Bankruptcy
Loan Modifications
Short Sales
Foreclosures

As a public service to AZ homeowners I am glad to offer you a free consultation. If you take advantage of this free service and then go to speak to an attorney and tax expertyou will be armed with information that will help you get more from their consultation fee.