Finally, a Reason to Do a Short Sale Over a Foreclosure -- Hot Off the Presses

Hey Elizabeth - don't forget the IRS break for short sales:  short seller is no longer charged taxes on the "forgiven" part of their mortgage loan.  Besides that - ¿don't the banks file a claim with the mortgage insurance to cover their "losses"?

This does help tilt the scale for sellers to move more aggressively to a short sale versus letting the property lapse into foreclosure.  Great info, thanks!

Elizabeth - This sounds like promising news - I just hope it happens in reality!

It IS reality, Penn Properties.  Believe it!  And get out there and list some short sales!  If you need assistance in processing them, please contact me.

Thank you!

This is fantastic news!   I am going to add that link to my outside blog.

It's fun to be the first with juicy gossip--especially when it involves real estate!

How and who do you provide your circumstances to in order to get the  years knocked off?

Elizabeth, there was always a make sense to do short sales over foreclosure.  The interpretations just kept changing... now its coming back to the original differences.  My 2 cents.

Before this is all over.... short sales are going to be the majority instead of foreclosures and REOs.  The market can't take much more of the cycle - the way it is now.

Good post.

Rosemary, to what "original differences" are you referring?  To my understanding--I've been originating loans and reading lender guidelines for 18 years--there was never any reason beneficial to the homeowner to agree to a short sale over allowing the home to be foreclosed.  Lender guidelines have always counted foreclosure and short sale as one and the same, treated them with equal gravity and required the same seasoning. In addition, the Score Factor Code assigned to either has always been #22--"serious delinquency, derogatory public record or collection."

It's true that those with a vested interest in the outcome (real estate agents and investors) promoted short sale as preferable to foreclosure--real estate agents get a listing on a short sale but not if the property goes to auction--but that's not the same as Fannie Mae, Freddie Mac and the three credit bureaus viewing short sale as preferred over foreclosure.  They did not.  However, Fannie Mae has shortened seasoning for short sale and Freddie Mac will follow. Don't know what's going to happen at the three credit bureaus relative to the Score Factor Code.  Probably nothing. 

Very interesting information.  Thanks for passing it on.  You're right - there needs to be a reason for people to go through the short sale process.  I just did one with Countrywide and it was a horror through the whole thing!

Thanks for posting this. I was trying my best to explain to my clients why it is better to try to do a short sale rather than have the house foreclosed or have them file for bankruptcy. This should make their day.

Barb, there needs to be a reason for the homeowner to accept short sale as a means of divesting his property.  Short sale processing is a horror--which is why I recommend that realtors subcontract the process to a third party or hire someone to do it in-house.  For the homeowner, it's a matter of keeping the house tidy and available for viewing.  The processing of a short sale is not a horror to the homeowner as they're not involved.  Someone else does that, for which they earn a fee.

The homeowner, however, is giving something up; that is, the ability to stay in his house, rent free, for as long as it takes the lender to foreclose.  In some states--TX, for example--this process is accelerated but, typically, someone can live far longer as the process lurches toward foreclosure than they can if they agree to a short sale.

Prior to the recent Fannie Mae guideline change, I told distressed homeowners, "You may as well live in your house as long as you can; the hit to your FICO score and your ability to qualify for a future loan is the same."  Many homeowners blanch at the thought that they may be foreclosed.  After all, foreclosure is still the "F" word.  But social stigma is ALL it is, and it's a stigma that is fast fading, as Fannie Mae recognized.  But foreclosure still has enough negativity attached to it that "foreclosure rage" is fast becoming a trend.  By allowing a short sale, the homeowner's dignity remains intact--not to mention the house!--his future is brighter and, let's not forget, the realtor gets a listing.  :-)

Fannie Mae's new guideline modification is win/win all the way around. 

Elizabeth,

 Thank you ! this is good news !