"Which is worse a ‘Foreclosure' or a ‘Short Sale'"?
I often get that question; "Which is worse a Foreclosure or a Short Sale?" And the answer is, without an ounce of doubt, foreclosure!!! First I need to tell you, I am not an attorney or a CPA, nor do I play one on TV (LOL). I am an on the battlefield, at the front lines, fighting the good fight, grit and grin Realtor! So, I feel I am qualified to give you my street-wise opinion.
First some Foreclosure Urban Legends,
Myth 1: "The bank wants your home and will forgive all debt if you just mail them the keys."
The Truth: The bank wants their money, and they want it all! Your home was the collateral but the note you signed at the closing table is your obligation!
Myth 2:"If your house gets foreclosed on, then all you owe is the note."
The Truth: You owe the original debt plus late payments, plus interest, plus legal fees, plus past taxes, plus realtor fees, etc $40,000 to $100,000 or even more!
Myth 3: "If you walk away, the lender does not have to foreclose on the property."
The Truth: Just because you send the keys to the bank does not mean they legally own it. So they still have to foreclose on you. In fact, often when you abandon your home, the outcome is far worse. The asset (home) could be vandalized, the roof could leak, the basement could flood, a squatter could enter, etc. If any of these issues occur while the bank waits to take possession, the eventual sale price will be less, the bank's costs will increase and your deficiency will grow.
Myth 4:"The bank will never find me."
The Truth: The bank WILL find you; it is just a matter of time. They have entire departments in place to find borrowers and collect their debt. Because of the sheer numbers and magnitude of these delinquent loans, there is A LOT of their money out there, and they want it back! So they will find you, and they are very capable of garnishing wages!
Myth 5: "You are not better off by doing a Short Sale vs. a Foreclosure."
The Truth: That is the big LIE! A Short Sale is far better than a Foreclosure!!!
1. In a Short Sale you negotiate your settlement; in a Foreclosure, your settlement is dictated to you by court order.
2. A Short Sale minimizes the bank's expenses which lessens your deficiency, while a Foreclosure skyrockets the amount owed.
3. With a Short Sale, you have a normal closing--with the buyer present, no eviction notices on the door, no embarrassment.
4. The big plus of a Short Sale vs. Foreclosure is that there is actual "closure" with the Short Sale. When we close, the seller knows the terms, the banks stop calling, and their credit begins to heal. With a Foreclosure, after the bank gets the house, they make repairs, pay taxes and try to sell it. Once sold, they file a judgment with a court of law, against the borrower for the deficiency amount (i.e., remaining amount still owed after the sale). At which point the lender has up to 10 years to collect on the owed debt. The borrower can be on the hook for more then 12 years before the coast is clear.
5. Credit rating is like the human body; the moment the trauma is over both the body and your credit rating begins to heal. A Short Sale is like a laceration and a Foreclosure is like a virus. With a Short Sale, your credit will begin to heal the day after closing. With a Foreclosure, not until the last collector gives up, will your credit see any relief.
Myth 6: A Foreclosure and a Short Sale are both easy to do.
The Truth: Yes a foreclosure is "easier" in that anyone can easily put their head in the sand and pray. A Short Sale is harder in that it takes more time and effort; your Realtor does the hard part, but the agent needs the seller's cooperation and due diligence.
RULES TO LIVE BY:
1. Make sure your Realtor is experienced in Short Sales. Often sellers have only one shot at doing this right. Some Realtors will tell you they do Short Sales, but you might be their first. Don't be afraid to ask for references of their past Short Sale clients.
2. Be careful of 3rd party companies or scam artists that say they want to help you. They might be trying to make money off of your misfortune.
3. Be careful of Realtors who will farm out the Short Sale part to another company. Some Realtors want to take advantage of the Short Sale market but are not willing to get their hands dirty, passing the hard work to another party. This often ends worse for the borrower.
4. When in doubt always seek legal advice! Realtors are paid to sell your home and protect your sales interest. Attorneys and CPA's are paid to protect your greater interests-to look at the big picture of your financial situation.
5. If it is too good to be true, it probably is! Do not take the path of least resistance: hard work can almost always undo any misfortune.
If you have any questions about a Short Sale or if you are looking for a Short Sale Realtor in Southeast Michigan, feel free to contact me anytime.
Mike Sher
Comments (2)Subscribe to CommentsComment