|Not many people attended this seminar, but I learned a few things there about short sales that I thought might be helpful.|
In short what I learned is that a lot of people who are current with their mortgage payments, taxes, association fees, etc. are taking the short sale route as opposed to the foreclosure route.
What is a short sale? - From Wikipedia - 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 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.
What are the consequences of foreclosure vs. a short sale? See the table below or click here for a copy of the source brochure.
|Issue ||Foreclosure ||Successful Short Sale |
|Future Fannie Mae Loan – Primary Residence ||A homeowner who loses a home to foreclosure is ineligible for a Fannie Mae-backed mortgage for a period of 5 years. ||A homeowner who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed mortgage after only 2 years. |
|Future Fannie Mae Loan – Non-Primary ||An investor who allows a property to go to foreclosure is ineligible for a Fannie Mae-backed investment mortgage for a period of 7 years. ||An investor who successfully negotiates and closes a short sale will be eligible for a Fannie Mae-backed investment mortgage after only 2 years. |
|Future Loan with any Mortgage Company ||On any future application, a prospective borrower will have to answer YES to question C in Section VIII of the standard 1003 form that asks “Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?” This will affect future rates. ||There is no similar declaration or question regarding a short sale. |
|Credit Score ||Score may be lowered anywhere from 250 to more than 300 points. Typically will affect a credit score for over 3 years. ||Only late payments on mortgage will show, and after sale, mortgage is normally reported as ‘paid as agreed’, ‘paid as negotiated’, or ‘settled’. This can lower the 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. |
|Credit History ||Foreclosure will remain as a public record permanently, and on a person’s credit history for 10 years or more. ||A short sale is not reported on a credit history. There is no specific reporting item for ‘short sale’. The loan is typically reported ‘paid in full, settled’. |
|Security Clearance ||Foreclosure is the most challenging issue against a security clearance outside a serious misdemeanor or felony conviction. If a client has a foreclosure and is a police officer, in the military, in the CIA, security, or any other position that requires a security clearance, in almost all cases clearance will be revoked and position will be terminated. ||On its own, a short sale does not challenge most security clearances. |
|Current Employment ||Employers have the right and are actively checking the credit of all employees who are in sensitive positions. In many cases, a foreclosure is reason for immediate reassignment or termination. ||A short sale is not reported on a credit report and is therefore not a challenge to employment. |
|Future Employment ||Many employers are requiring credit checks on all job applicants. A foreclosure is one of the most detrimental credit items an applicant can have and in most cases will challenge employment. ||A short sale is not reported on a credit report and is therefore not a challenge to future employment. |
|Deficiency Judgment ||In 100% of foreclosures (except in those states where there is no deficiency), the bank has the right to pursue a deficiency judgment. ||In some successful short sales, it is possible to convince the lender to give up the right to pursue a deficiency judgment against the homeowner. |
|Deficiency Judgment (Amount) ||In a foreclosure, the home will have to go through an REO process if it does not sell at auction. In most cases this will result in a lower sales price and longer time to sale in a declining market. This will result in a higher possible deficiency judgment. ||In a properly managed short sale, the home is sold at a price that should be close to market value, and in almost all cases will be better than an REO sale resulting in a lower deficiency. |
For more information contact Green Cay Village Homeowner Rosario N. Salazar| Realtor| Coldwell Banker Residential Real Estate | 2301 Glades Road | Boca Raton, FL, 33431 | P: 561-994-8886| C: 561-632-8407|F: 561-997-9129| Email |