The Foreclosure Fairytale
A short sale and a foreclosure have the same effect on the property owner.
There are numerous and significant differences in the impact of a short sale vs a foreclosure.
What is a Short Sale?
In simple terms, it is the process by which the bank allows a distressed homeowner to sell the property for less than the amount owed on the loan. With so many property values falling below the loan amounts, short sales have become a popular option for homeowners and the bank who holds the lien.
Why is the Short Sale Better for the Homeowner?
Here are the top 5 reasons the homeowner benefits from the short sale:
- Credit Scores – In a foreclosure, the credit score typically is reduced by 250-300 points, and a foreclosure is reported directly on the credit report. There is no standard code reported for a short sale. If there are late payments, those affect a credit score also, but can be as little as 50 points. Also, a foreclosure can impact the score for 3 years or more, but a short sale can remain for 12-18 months, depending on the delinquency. If the homeowner has remained current on the their payments, they can sometimes buy a home the very next day after the short sale closes!
- Credit History – The foreclosure must remain on the credit report for at least 7 years. Because there is no specific code for a short sale, it is not on the credit history at all.
- Ability to Get Future Loans – The application for a loan specifically asks whether the borrower has had a property foreclosed upon or given a deed-in-lieu during the past 7 years. In a short sale, the answer to that question is a truthful “no.” Depending upon circumstances, a seller in a short sale can buy a new home again much sooner.
- Current and Future Employment – Credit checks are often run on potential new employees, but in some cases, employers are also keeping tabs on the credit of current employees as well. They don’t want their business jeopardized by a desperate employee in dire financial circumstance.
- Security Clearance – If a homeowner is in the military or holds a highly sensitive job that requires an official security clearance, a foreclosure is second only to a felony conviction as the most challenging issue of maintaining that clearance. In many cases, when a foreclosure hits a person’s credit, he or she can be reassigned or let go from that position, and obtaining a new security clearance is often impossible.
One of the Most Important Things to Know
The sooner help is sought, the more options are available, and the greater chance of success.
As a real estate professional who has earned the Certified Distressed Property Expert (CDPE) designation, my mission is to provide financially strapped homeowners with alternatives to foreclosure, help them steer clear of scams, and assist them in finding the solution that best meets their needs.
These are tough times, but more help is available than ever before. If you or someone you care about needs freedom from the frustration of a mortgage they can’t pay, contact me today and let’s get started.
Always seek legal and tax advice from a competent professional. This information is not intended as legal advice.