Many home owners seem under the impression that doing a short sale instead of a full-blown foreclosure will somehow save their credit rating or make it easier on them when it comes time to buy a new home. I'm not certain who is perpetrating this myth. Perhaps it is inexperienced but well meaning real estate agents or maybe it's another entity that stands to profit from the situation facing many distressed home owners who are near or in default.
According to the financing professionals I have talked with, short sales are not the magical answer to financial woes. You may not be any better off working out a short sale with your lender than letting your home go into foreclosure. At least with a full-fledged foreclosure, you are in possession of the property to the bitter end, and you aren't making payments for that right . . . read more about whether a Short Sale Ruins Credit.
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At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.
Comments
It may not be a magical answer to avoiding foreclosure but it is in fact much better. Especially for the homeowner’s emotional state, a short sale is much less defeating.
Perhaps, if the short sale closes. If it doesn’t, the home owner has jumped through a bazillion hoops for nothing, put up with agents calling for home showings, strangers tromping through their home, keeping the home spic and span, broker opens, mls opens, Sunday open houses — not to mention baring their souls and bank accounts to the lenders, rushing off to all-night copy store to make duplicates of their tax returns and overnight to the lender, only to hear the lender has lost the paperwork. Foreclosures, on the other hand, are pretty straight and clean. The banks file a NOD (in CA) and about four months later, the owners move out.
Wow, I cannot believe what I read here…How about one thing they ask on the app for new Loan.. Have you had a Foreclosure? They do not ask if you had a short sale. So if you did a Short Sale Versus Foreclosure you don’t have to wait 2-3 years before you can buy a house (assuming you will get approved)
That’s right. They don’t ask about short sales on those apps, only foreclosures. That may change, though. If you let your home go into foreclosure, you must wait 5 years. But if you do a short sale, it’s 2, unless, of course, you are current on your payments. If you’re current, Fannie Mae guidelines say you may qualify to buy another home immediately.
I just had a person who short sold her home in Las Vegas, NV while she was current on her payments. Bank of America reported her loans as paid and her credit score is 755. I am not sure if it was a mistake and I have yet to see her credit report, but this is way better than a foreclosure. She got rid of about $300,000 in negative equity and she financed a smaller home after the sale. In Nevada, we have deficiency judgments on the first and second so the mortgage lender can come after someone who forecloses or does not negotiate the future liability away in a short sale. The Statute of Limitations is 6 years and after the Deficiency Judgment is obtained, the mortgage lender can come after the person forever as the deficiency judgment can be renewed. The judgment can be used to garnish wages, lien property, garnish bank accounts, etc. of both spouses (if debt is community debt) as Nevada is a community property state.
This article is in error and is irresponsible. You are much better off doing a short sale than a foreclosure.
Selling your home via a short sale, if done properly, saves you from the bank coming after you for unpaid mortgage balances after a foreclosure. These are called deficiency judgements and they can follow you for life. With a short sale you are able to correct your credit report to show the loan as “paid as agreed” after the short sale because that is in fact what happened, the bank was paid “as agreed” by virtue of their approval of the short sale. Please don’t put short sales and foreclosures in the same category because the foreclosure is always a much worse consequence for any consumer than a short sale; provided the short sale is done correctly.
It is absolutely incorrect to presume that a short sale is always better than a foreclosure. I sell a ton of short sales, and I can tell you that it is not always the case. Some of you speak of generalizations. There are exceptions. Do you fall within that exception? Hard to say because every short sale is different.
In states in which a deficiency judgment is permitted (California, at the moment, is not one of those states), a deficiency after a short sale has about the same credit ramifications as a foreclosure. It’s a fact, Jack.