What are the Differences Between a Short Sale and a Foreclosure?
Review the following comparisons between short sales and foreclosures for a better understanding of why short sales are usually a better option for most homeowners. While a short sale is does require some involvement of time from you, most always the advantages make it your best option.
Following a successful short sale your mortgage will be reported on your credit score as either paid or negotiated, lowering your score as little as 50 points and affecting you for only 12 to 18 months. After a foreclosure, however, your credit score can lower as much as 300 and usually at a minimum of 250 points and affects your score for over three years.
What implications are there for my credit history? A short sale is usually reported as paid in full and is not reported on your credit history. A foreclosure will remain on your credit history for 10 years or more and will remain as public record.
Who makes the decision whether my home should undergo a foreclosure or a short sale?
In both short sales and foreclosure, the actual decision is made by your mortgage lender. The most important aspects to getting a lender to agree to a short sale, and saving you the more damaging credit implications of a foreclosure, is to explain that you have no other way to pay the mortgage and that the amount received from a short sale is the fair price of the market. Our experience is that it is unusual that a lender will not agree to a short sale in preference to a foreclosure, providing the application is made too late after the foreclosure proceedings are well under way.
The Internal Revenue Service determines that any short fall in the amount owed to the lender can be considered “unearned income” and liable for taxation. However there was legislation passed by Congress preventing this occurring in situations where the debt is on your own residence and it was used to buy or remodel the home. We can provide more detail on this, but you may also want to talk with your tax advisor.
How long will I have to wait to buy another home? After a foreclosure, you may end up waiting some years before a mortgage lender will offer you an interest rate that is acceptable. Most mortgage lenders report that for homeowners who have undergone a previous short sale they may get a reasonable interest rate in less than two years. Fannie Mae guidelines allow a short seller to apply for a new loan immediately if payments were kept current and had no 60-day late payments on their record. Otherwise with private financing you may be able to buy another home right away.
For most mortgage lenders you will not be asked to declare or be questioned regarding a short sale on any standard loan application (Line 1003). But in regards to foreclosure, you will be asked on any future standard loan application if you have had a property foreclosed in the last seven years, and this will affect your rate or whether you are approved. Fannie Mae backed mortgages will be available to you following a short sale after two years. Fannie Mae backed mortgages will not be available to you for at least five years if you have lost your home due to a foreclosure.
Is there any affect on my employment opportunities? A short sale does not appear as such on a credit report and will not challenge your current employment status. In comparison, if you have a foreclosure on your credit report, some employers consider it a reason for termination or reassignment since many run credit checks on employees for certain positions. A foreclosure can be extremely harmful to your chance of being selected for a new job if your credit report is taken into consideration.
Normally you neither a short sale or a foreclosure will cost you anything additional. Buyers of short sales understand that a short sale seller is in financial distress and so will usually not ask for a seller to pay for inspections. Sometimes lenders will ask for a homeowner to make a contribution or sign a promissory note as part of their approval of a short sale, but this is not common, and is still negotiable.
At closing with a short sale, which might take as long as six months. Most homeowners under foreclosure will move before the sale, because of the discomfort with the process. If you are still in the home when if forecloses you will get notice shortly afterwards, usually 60 days, and eventually an eviction.
It is best to put aside as much of the money you would have been using to make payments on the mortgage. If you are still in your home when it forecloses, sometimes you may be offered “cash for keys”. If you have applied for a loan modification first, you may qualify under the government’s HAFA program for up to $3,000 for moving expenses.
Is there any way I can still buy a house on this market?
With private financing from individual, rather than institutional lenders, at higher interest rates, you may still be able to buy a home after a short sale. But you will also need to have a substantial down payment. We have arranged this for clients who have completed a short sale. This may not be possible if you have allowed your home to go into foreclosure.
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How does a short sale versus a foreclosure affect the deficiency?
As of July 15, 2011, with the passage of California law SB 458, effective after the short sale of a residential property of one-to-four units, the holder of any senior or junior deed of trust cannot pursue the borrower (seller) for any deficiency under the note. The borrower (seller) is protected even if the loan is refinanced as long as it's secured by a trust deed. The only exception to this is if the seller borrower (seller) is a corporation of there has been fraud committed or there has been “waste” of the property.
This is contrasted with a foreclosure, where a lender may pursue a deficiency judgment should they choose to do a judicial foreclosure. So in almost all cases, a short sale is protection from any attempt by a lender to pursue a deficiency judgment against you.
Here is a testimonial from successful short sellers with our team:
You all rocked!Thanks for working so hard and staying on top of the short sale.I know this wouldn’t have gone so well if Timothy & Debbie weren’t on it.
Wesley & Kara Chapman
Timothy Toye Timothy Toye & Associates Cobb Village Center 16360 Hwy. 175 Cobb, CA. 95426-1353 Office: 707-928-6900 24-Hour Direct Line: 707-928-5912 Fax: 707-928-5696 Email: Timothy@TeamToye.com
Lake County's Leading Real Estate Team covering the whole of the County including Cobb, Middletown & Hidden Valley Lake, Clearlake Riviera, Jago Bay, Riviera West, Buckingham & Riviera Heights, Kelseyville, Lakeport, Lower Lake, Clearlake Oaks, Nice, Lucerne and Upper Lake, as well as lakefront, ranches and acreage properties.
Timothy has more than 26 years experience successfully selling real estate both in California and the US, as well as in his native land of New Zealand. He has assembled a powerful team of experienced Realtors, operating on specific professional principles, with full marketing and administrative assistance to ensure that you have a successful real estate experience.
He has extensive management, real estate investment and marketing experience, having worked and consulted with Best Image Marketing, the top Internet marketers for Realtors in North America, and located in Lake County. The other members of the team complement this experience.
Timothy is both a high individual producer, having closed as many as 130 transactions in a year, including selling more properties than any other Realtor in the County from 2004 to the present, as well as a skillful sales manager & trainer.
In 1990 he led his sales team to the #1 residential sales production award in the whole of New Zealand. He and his team have invested personally in real estate extensively in many different kinds of property including single family homes, fixer-uppers, apartment buildings and raw land. They have bought several properties 'creatively' with no money down.
Team Toye, the most productive real estate sales team in Lake County in 2009, and in 2011 we have represented more buyers than any other real office in the county, brings a combination of personal skills, in-depth experience, and positive principles of professional practice
to ensure your real estate experience is as positive and beneficial for you as possible.
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Cobb, Middletown and Kelseyville, California
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