Are you or someone you know facing a short sale or foreclosure?
Do you know what to do to avoid being foreclosed on?
Do you know the difference between a short sale and foreclosure?
Do you know what programs are available to possibly help you avoid a short sale/foreclosure?
Today, 1 out of 5 homeowners in America are about to become or are behind on their mortgage payments resulting in short sales and foreclosures. While these are tough and frustrating times, you need to understand you’re not alone. You need to also know that more than ever, it’s important to know your options, because there are many you may be able to take advantage of in order to avoid foreclosure, save your credit and/or salvage your financial future! You do need to act quickly as you may only have 6 months or less to remedy your situation. The earlier you figure out your options, the easier it will be for you to find the best solution for your situation!
What is a Short Sale? A short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property’s loan. It often occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the borrower. Both parties (seller/owner and lender) consent to the short sale process, because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrowers. This agreement, however, does not necessarily release the borrower from the obligation to pay the remaining balance of the loan, known as the deficiency. Speak to a real estate agent to determine if in your state and your case, a deficiency would be waved.
What is a Foreclosure? It is a legal process by which a defaulted borrower is deprived of his or her interest in the mortgage property. In other words, your home is taken away from you by the bank.
What’s the advantage of doing a short sale vs. being foreclosed on?
The advantages to selling your home as a short sale vs. letting it be foreclosed on are many including:
- You may be eligible for a Fannie Mae-backed mortgage after 2 years.
- Only late payments on mortgage will show and after a sale, mortgage is normally reported as “paid as agreed”, “paid as negotiated”, or “settled”. This can lower your credit score as little as 50 points if all other payments are being made. A short sale’s effect can be as brief as 12 to 18 months.
- A short sale is not reported on a person’s credit history. There is no specific reporting item for “short sale”. In most cases a loan is typically reported as “paid in full”, “settled” or “paid as negotiated”.
- On its own, a short sale does not challenge most security clearances. So if you have a job that requires a security clearance, you are better off selling your home as a short sale. Going into foreclosure my mean you could lose your job in this instance.
- A short sale is not reported on a credit report and is therefore not a challenge to employment.
- In some short sale situations, the lender may not pursue a deficiency judgment against the homeowner.
- If a property is sold at a price that is close to market value, it will be better than an REO sale resulting in a lower deficiency.
If you let your property go into foreclosure, this is what you will be facing:
- A homeowner who loses a home to foreclosure can’t get a Fannie Mae-backed loan for a period up to 7+ years with few exceptions.
- On any future 1003 applications, a borrower will have to answer YES when asked “Have you had property foreclosed upon or given title or deed-in-lieu thereof in the last 7 year?” This will affect future rates.
- Credit scores may be lowered anywhere from 250 to over 300 points and typically affects scores for over 3 years.
- Foreclosures will remain as a public record on a person’s credit history for 7 years or more.
- Foreclosure is one of the most challenging issues against a security clearance outside of a conviction of a serious misdemeanor or felony. If a client has a foreclosure and is a police or security officer, in the military, in the CIA, or any other position that requires a security clearance in almost all cases clearance will be revoked and position will be terminated.
- Employers have the right and are actively checking the credit of all employees who are in sensitive positions. A foreclosure can be grounds for immediate reassignment or termination.
- Many employers are requiring credit checks on all job applications. A foreclosure is one of the most detrimental credit items an applicant can have and in most cases will challenge employment.
- In 100% of foreclosures (except in those states where there is no deficiency) the bank has the right to pursue a deficiency judgment.
- The sale of a foreclosure may result in a lower sales price and longer time to sale in a declining market. This will result in a higher possible deficiency judgment.
Reasons for a short sale/foreclosure:
- Change in employment
- Business failure
- Payment increase or mortgage adjustment
- Divorce or death of a spouse
- Reduced income
- Mortgage fraud
- Predatory lending
If you or someone you know would like to know more about your options and the programs available to assist you, please call or email me for a private consultation today.