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Short Save vs. Foreclosure

By
Real Estate Agent with ERA Joyner Realty 331464

Foreclosure? Short Sale? REO? What do they all mean? These are the most common terms being used today describing distressed homes, and with the ever changing housing market who can keep up with them all?

I would like to take a moment to "shine some light" on each of these terms to help you better understand them.

FORECLOSURE:

is the process in which the lender takes possession of a piece of property due to the home owner failing to make their payments each month.  The time frame that the lender starts foreclosure proceedings vary from lender to lender and from state to state.

How is your credit affected? You will take between a 200 and 300 point hit on your credit report with a foreclosure, ie: if your FICO score was 720 prior to foreclosre it could drop to 420 after. It will stay on your credit history for 7-10 years.

There will be a waiting period after a foreclosure before  someone can purchase another home. Right around 5-7 years. It will also depend on how much effort the borrower will put into repairing their credit after a foreclosure and re-establishing new credit. Making payments on time and showing responsiblilty with the money that is borrowed.

Short Sale:

is when the lender will accept less than the full loan payoff. This is usually due to the fact that there is not enough equity built up in the house to sell and pay all the costs of the sale.

Not all lenders will negotiate a short sale, this is where a Realtor® or attorney can come in handy when contacting the loss mitigation department to find out.

It use to be that the borrower needed to be in arrears before a lender would consider a short sale, but this is not nessessarily the case anymore. But you will have to prove a financial hardship in order for the bank to consider a short sale. You can't just decide one day that you are upside down in your house so you want to attempt a short sale.  Owing more on a house than what it is worth is not reason enough to do a short sale, and the lender will not see it that way either.

How will it affect your credit score? There seems to be a bit of controversy over how a short sale will affect your credit. Some say the affect is the same as a foreclosure. Others like myself, will tell you that it is not nearly that bad. Some of the clients I have worked with have checked their scores after several months following a short sale and it dropped by only a 100 points or so. But every short sale will have a different outcome. There are so many variables that come to play within the short sale process, it is hard to predict exactly what will happen in the end.

You will also have a waiting period after a short sale before you can purchase another home. Usually within 24 months you will be allowed to purchase again.

Also note: that Fannie Mae guidelines will allow a seller to immediately  apply for a new loan if the seller kept their payments current during the short sale process, had no delinquencies exceeding 30 days and did not agree to repay the debt relief.

REO:

the REO abbreviation simply means REAL ESTATE OWNED properties. If the home is not purchased during a sheriffs sale on the court house steps following foreclosure it then reverts bank to the bank as an REO and the bank takes title of property. It than can be turned over to a Realtor® by the bank list, market and sell.

If you are a home owner trying to decide between a foreclosure and short sale, please call or email me and we can set up a time to go over the options and find what might work best for you and your situation.

 

Posted by

If you are interested in BUYING or SELLING a home in Lowndes County or the surrounding area and want a professional consultation on current market conditions, please contact me at 229.834.0946  or e-mail me at janice.macmillan@mchsi.com or visit my website at  http://lowndescountyhomes.com

 

 

Janice MacMillan, Associate Broker

Comments (2)

Michael J. Perry
KW Elite - Lancaster, PA
Lancaster, PA Relo Specialist

Good job explaining these !!!! I would have reblogged it for my FB readers , but it appears not to be an option ?

Mar 29, 2010 12:09 PM
Janice MacMillan
ERA Joyner Realty - Valdosta, GA
Associate Broker

Thanks Michael ~ I have fixed the reblogging. It should be fine now. Somehow I had managed to unclid the reblog box.

Mar 29, 2010 12:28 PM