***Top 10 Reasons to Consider Doing a Short Sale vs. Foreclosure***
1) Deficiency Judgement- A deficiency judgment is an unsecured money judgment against a borrower whose mortgage foreclosure sale did not produce sufficient funds to pay the underlying promissory note, or loan, in full. The availability of a deficiency judgment depends on whether the lender has a recourse or nonrecourse loan, which is largely a matter of state law. In some jurisdictions, first mortgages are non-recourse loans, but second and subsequent ones are recourse loans.
States that follow the title theory of mortgages typically allow non-judicial foreclosure procedures, which are fast, but do not allow deficiency judgments. States that follow the lien theory of mortgages require judiciary foreclosure procedures, but allow deficiency judgments against the debtor.
*In 100% of foreclosures (except in those states where there is no deficiency) the bank has the right to pursue a deficiency judgment.
In some successful short sales it is possible to convince the lender to give up the right to pursuit a deficiency judgment against the homeowner.
2) Current Employment- Employers have the right and are actively checking the credit regularly of all employees who are in sensitive positions. A foreclosure in many cases is grounds for immediate reassignment or termination. A short sale is not reported on a credit report and therefore not a challenge to employment
•3) Future Employment- Many employers are requiring credit checks on all job applicants. A foreclosure is one of the most detrimental credit items and applicant can have and in most cases will challenge employment. A short sale is not reported on a credit report and is therefore not a challenge to employment
•4) Deficiency Judgment (amount)- In a foreclosure the home will have to go through an REO Process if it does not sell at auction, In most cases this will result in a lower sales price and longer time to sale in a declining market. This will result in a higher possible deficiency judgment. In a property managed short sale the home is sold at a price that should be close to the market value and in almost all cases will be better than an REO sale resulting in a lower deficiency.
•5) Security Clearances-Foreclosure is the most challenging issue against a security clearance outside of a conviction of a serious misdemeanor or felony. If a client has a foreclosure and is a police officer, in the military, in the CIA, Security, or any other position that requires a security clearance in almost all cases clearance will be revoked and a position will be terminated.
•6) Future Fannie Mae Loan- Primary Residence (effective May 21, 2008)- A homeowner who loses a home to Foreclosure is ineligible for a Fannie Mae backed mortgage for a period of 5 years. A home owner who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed mortgage after only 2 years.
•7) Future Fannie Mae Loan- Non Primary (effective May 21, 2008)- An investor who allows a property to go to Foreclosure is ineligible for a Fannie Mae backed investment mortgage for a period of 7 years. An investor who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed investment mortgage after only 2 years.
•8) Future Loan with any Mortgage Company- On any future 1003 application, a prospective borrower will have to answer YES to question C in Section VIII of the standard 1003 that asks "Have you had a property foreclosed upon or given title or deed in lieu thereof in the past 7 years?" this will affect future rates. There is no similar declaration or question regarding a short sale.
•9) Credit Score- With a foreclosure your score may be lowered anywhere from 250 to over 300 points. Typically will affect score for over 3 years. In a short sale only late payments on the mortgage will show and after the sale the mortgage will be reported as paid or negotiated. This will lower the score as little as 50 points if all other payments are being made. A short sale's affect can be as brief as 12 to 18 months.
•10) Credit History- Foreclosure will remain as a public record on a person's credit for 10 years or more. Short Sale is not reported on a credit history. There is no specific reporting item for "short sale". The loan is typically reported "paid in full, settled".
For more information please contact Marty Remo @ (845) 476-8115
REMAX Benchmark Realty Group assumes no responsibility nor guarantees the accuracy of this document. REMAX Benchmark is not engaged in the practice of law nor give legal advice.
*Distressed Property Institute, LLC 2008. All rights reserved. Any duplication without express written consent is prohitited
Comments(4)