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A Dignified Alternative to Foreclosure

When a mortgage becomes unaffordable, avoiding foreclosure becomes a primary goal. It is a unique situation that adjusts priorities and changes perspectives. For the millions of homeowners unable to make their mortgage payments today, there are alternatives to foreclosure that can lead to an entirely different, more positive financial outcome. To understand you alternatives read my blog There are Dignified Solutions to Foreclosure.

One of the leading solutions to foreclosure today is a short sale. In a short sale, the lender agrees to accept the sale amount, even if it is less than what is owed on the mortgage. In this report, you’ll see how the consequences of foreclosure compare to those of a short sale. As a CDPE-designated agent, I have been extensively trained in the alternatives to foreclosure and can help you make an informed decision. To understand  a Short Sale, read my blog Short Sale- The Better Choice.

Your Future Loans

My goal is to help you get your life back to normal as quickly as possible, and part of that is your ability to own a home again. Here, a short sale can help. After previous mortgage difficulties, owning a home in the near future will depend on your loan eligibility, which is severely impaired by foreclosure. A successfully negotiated short sale will allow you to be eligible for a Fannie Mae-backed loan in only two years, as opposed to five years after a foreclosure (seven years if the property is not your primary residence).

What would it mean to own a home

again in three to five years?

When attempting to acquire a mortgage through another company, your loan application will ask whether you’ve had a property foreclosure in the last seven years. These applications do not ask about any past short sales, meaning if you have avoided foreclosure through a short sale, your chances of securing a future loan with lower interest rates are substantially better.

Also, you can immediately apply for an FHA (Federal Housing Administration) loan after a successful short sale, assuming you are current on your mortgage payments before the sale. If you aren’t current, you will be eligible after just three years. If you want to determine your eligibility for this process, contact me as soon as possible.

Your Future Credit

A short sale may only lower your credit score

by as little as 50 points.

When facing the possibility of foreclosure, your credit score is also at stake – something that has become a stronger factor in lenders’ decisions to provide loans, low interest rates, credit cards, etc. A short sale, by itself, can lower your credit score by as little as 50 points, as opposed to anywhere from 250 to over 300 points in a foreclosure. In addition, a drop in credit due to a short sale can be recovered as quickly as one year, while a foreclosure will affect your credit for at least three years. Your credit history, which is also taken into account for loans, does not keep record of past short sales, but a foreclosure will be publicly recorded for at least 10 years

Your Future Employment

Current and future employers have the legal right to check their employees’ credit, and many of them do so regularly. If an employer checks your credit, you want the report as clean as possible. Unlike foreclosure, a short sale is not directly reported on your credit (it will usually say “paid as agreed”, “paid as negotiated”, or “settled”).

If your job requires a security clearance – such as police, military or government work – a foreclosure most often presents an issue. Since short sales are currently not explicitly reported on credit reports, they do not challenge most security clearances.

Your Deficiency Judgment

A deficiency is the difference between the fair market value of the property and the amount received, providing the amount received is less than the amount owed. Deficiency judgments sometimes pop up after a foreclosure or shot sale. That’s because many sellers don’t obtain legal or tax advice in advance, so the deficiency judgment comes as a surprise. Moreover, deficiency judgments are a complicated process to understand.

Contrary to what people think, deficiency judgments stem from the fact a borrower defaulted on a promissory note, a not the mortgage. A promissory note is a promise to pay. It can also provide for personal liability, depending on your state laws. Personal liability means the lender can come after your assets if you do not make your payments.

A promissory note is secured by either a trust or a mortgage, depending on the financing instrument each state uses. Typically, the mortgage or trust deed is recorded in the public records where the property is located, which gives the public constructive notice that the home has a lien against it.

Deficiency Judgments in California

The good news for California borrowers is all purchase-money loans on a one- to four-unit residential dwelling are exempt from deficiency judgments.

Hard-money loans in California — loans taken out after the home was purchased through a refinance or second mortgage — can be subject to a deficiency judgment under the following conditions:

•                The lender forecloses under judicial proceedings (California Code Civil. Proc. § 726).

•                Most lenders foreclose through a trustee’s sale; however, which does not give the lender the right to pursue a deficiency judgment, with one exception (see second hard-money second mortgages below).

•                A three-month time limit applies to actions for deficiency judgments under a judicial foreclosure.

•                If the second mortgage is hard money and the lender has lost security for that loan through a foreclosure or short sale — making the security for the promissory note worth nothing — the beneficiary of that second mortgage can pursue a deficiency judgment (Roseleaf Corp. v. Chierighino, 59 Cal. 2d 35 (1963).

Negotiating Collection

Some hard-money lenders sell the promissory note to an investor after a foreclosure for pennies on the dollar. Then, the investor will attempt to collect the debt.

Even though a lender may have accepted, say, $1,000 for a $100,000 second mortgage through a short sale, the security for that hard-money second is released but the promissory note may not be. A short sale seller might believe the ordeal is over, until one day he receives a phone call, asking for repayment.

•                Realize that the lender most likely will negotiate for a discounted payoff.

•                The lender may ask for a new promissory note to replace the old promissory note. In that event, make sure the lender sends a “paid in full” promissory note.

•                If the lender has already sold the note, the discount may be greater.

•                Not all hard-money promissory notes must be paid in cash. Some lenders will accept payments.

•                If the lender directs payments to another entity, realize that the note may have been sold at less than its face value, and that new lender may accept an even lower amount as payment in full.

After the note is paid in its entirety, ask the lender to return the promissory note marked “paid in full.”

Source: California Association of Realtors

The Short Sale Option

A short sale offers more than the opportunity to strengthen your future financial stability. It offers peace of mind. The value of this foreclosure alternative is why I have taken the time to understand and master the short sale process.

You deserve a professional level of guidance in your situation, and I offer extensive knowledge and access to updated information about foreclosure avoidance. As a CDPE-designated agent, I have made a commitment to helping as many homeowners as possible. A short sale could make a huge difference in your financial future, so please contact me right away.

© 2010 Distressed Property Institute, LLC All Rights Reserved. The above brokerage assumes no responsibility nor guarantees the accuracy of this information and is not engaged in the practice of law nor gives legal advice.

It is strongly recommended that you seek appropriate professional counsel regarding your rights as a homeowner.