Scott Riddle, PA, ABR, SFR
4851 Tamiami Trail North #200
Naples, FL 34103 (239) 289-1849
Short Sale VS Foreclosure
While for some homeowners, it is easier to throw up your hands and let the bank take your home, that might not be the wisest thing to do. Short Sale Benefits
Here are a few benefits for doing a short sale that may not have occurred to you:
• You are in control of the sale, not the bank.
• You will know what is going on at each step of the process
• You will spare yourself a foreclosure on your credit.
• Your home sale will be handled like any other home sale, just needing bank approval.
Buying Again After a Short Sale
If your payments have never fallen behind 30 days late and the lender does not require that you pay back the loan, Fannie Mae guidelines may allow you to buy another home immediately. The wait for a FHA is 3 years.
If your payments are in arrears yet a short sale is granted by your lender, you may qualify to buy another home with a Fannie-Mae backed mortgage within two years, regardless of whether the home is your primary residence.
Buying Again After a Foreclosure
With certain restrictions, you may be eligible to buy another home in 5 years if the home was your primary residence. Without restrictions, the wait is 7 years.
If you are an investor and do not occupy the home, the wait to buy with a Fannie Mae insured loan is 7 years.
This alone is worth doing the short sale!!
Affects on Credit After a Short Sale
A short sale is not a derogatory mark on your credit because credit bureaus do not show the word "short sale" on your credit report. It may say "pay as agreed" or "paid as less than agreed," among other categories. Some clients have reported negative credit scores that droped from 50 points to 130 points. The credit score drop is typically due to being in default, that is behind on your payments.
Affects on Credit After a Foreclosure
A number of sources have reported credit score drops from 200 to 400 points after a foreclosure. Generally this credit score will remain on your credit report as a public record for 10 years.
Credit Reports After a Short Sale
All lenders report short sales differently and some do not report them to the credit bureaus at all.
Credit Reports After a Foreclosure
If a prospective employer runs a credit check on you, your job application may be denied if you have a foreclosure on your record. It is the 2nd biggest thing behind criminal behavior that companies look for when hiring.
Deficiency Judgments After a Short Sale
Judgments are often negotiated between the seller and the short sale bank.
Deficiency Judgments After a Foreclosure
Banks are unwilling to negotiate deficiency judgments with the homeowner after a foreclosure. In California, for example, according to the California Association of REALTORS, a deficiency judgment may be filed regarding a hard-money loan if the lender forecloses under a judicial foreclosure versus a trustee sale or if the second loan is a hard money loan and the sale takes place as a trustee's sale.
Loan Application Questions After a Short Sale
Loan applications do not ask questions about a short sale. You may report that you sold your home.
Loan Application Questions After a Foreclosure
You are required to answer the question: "Have you ever had a property foreclosed upon or given a deed-in-lieu thereof in the past 7 years." If the bank sees you have had a foreclosure, your loan most likely be flagged for a manual underwrite making it harder to achieve a loan approval. If you lie, you may be subject to investigation by the FBI and it is a felony.
Length of Time to Move After a Short Sale
If you've had a foreclosure notice filed, you may be able to postpone that action while the bank considers your short sale. The wait for an approval can be from 2 to 6 months, or longer.
Length of Time to Move After a Foreclosure Unless prior arrangements have been made, the bank may want you to immediately vacate the property and can commence eviction proceedings.
Taxation After a Short Sale A personal residence is exempt from mortgage debt relief until the end of 2012 on a federal level. Some states will still tax you unless you qualify for an exemption. An investor is not exempt from mortgage debt releif, subject to certain conditions.
Taxation After a Foreclosure Same as with a short sale. Except some lenders immediately send out 1099s, even if the owner is exempt.
In closing, always obtain legal and tax advice before making a decision between a short sale or a foreclosure.