Sellers often ask me if they can’t afford to continue making their mortgage payments, what’s the difference if they do a short sale or just let the bank foreclose?
Please, please, please don’t let the bank foreclose before you know the difference, and you and I talk about the details. My initial consultation is free.
Your current situation is temporary, your finances will change in the future, and the choices you make now can affect you long into the future. The tools available to fix your problem include -
· Short Sales
· Foreclosure
· Loan Modifications
· Bankruptcy.
Each of these tools will have a different impact on both your short and long term financial health. You need to speak to a realtor, an attorney, and a tax expert before you make this very important decision. Most of the time property owner’s long term financial health is better off if they do a short sale. There are, however, some cases where the property owner’s long term financial health is better off by letting the bank foreclose or doing a bankruptcy.
A short sale occurs when you negotiate with the mortgage company to accept less than the full balance of the loan. The important difference effect your -
· Credit History
Foreclosure will hurt your score by approximately 250 to 300 points for at least three years. In addition the loan will show on your credit report as foreclosed for 7 years.
Short sale – Only the late or missed payments prior to the short sale will be reported, the points off your credit report can be far less, and if you make all you other payments on time the impact will only be 12-18 months. Furthermore, the loan is typically reported as “settled” or paid in “full”.
· Getting a mortgage in the future – in addition to the difference in your credit score with a foreclosure you will not be able to get a Fannie May backed loan for 5-7 years, and you will have to answer yes to the question have you ever been foreclosed on. Having to say you have been foreclosed on will increase your future interest rates. With a short sale you will only be prevented from getting a Fannie May loan for 2 years, and you never have to answer yes to whether you have been foreclosed.
· Security Clearances – with a foreclosure if you are a police officer, in the military, or any other position that requires a security clearance, the clearance will be revoked. A short sale on its own does not challenge most security clearances.
Remember my golden rule – friends don’t let friends get foreclosed on until after they have figured out if short sale can help them more. You cannot know what is best for you without knowledge of
· The AZ Deficiency Statute
· Bankruptcy
· Loan Modifications
· Short Sales
· Foreclosures
As a public service to the unfortunate homeowners of AZ I am glad to offer you a free one hour consultation. If you take advantage of this free service and then go to speak to an attorney and tax expert you will be armed with information that will help you get much more for you money out of their consultation fee.
