Short Sale vs. Foreclosure
Short Sale Benefits:
Below is a list of short sale benefits that you may not have thought of:
- You are in control of the sale, not the bank.
- You may sleep better at night knowing who is buying your home.
- You will spare yourself the social stigma of foreclosure.
- Contrary to popular belief, you can be current on your payments and still sell through a short sale.
- Your home sale will be handled like any other home sale.
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. Finding a lender who will fund that kind of loan is very difficult, but not impossible. If you are current on your mortgage, you can qualify for an FHA loan immediately as well, but lender requirements can be challenging, e.g., you must move more than 600 miles from the sold property.
If your payments are in arrears when the 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. The wait for an FHA loan is three years.
Buying Again After a Foreclosure:
If the home was your primary residence, you may be eligible to buy another home in five years with certain restrictions. The wait is seven years to have no restrictions.
If you are an investor and do not occupy the home, the wait to buy with a Fannie Mae insured loan is seven years.
Affects on Credit After a Short Sale:
A short sale may be considered to be a derogatory mark on your credit even though credit bureaus do not show the words "short sale" on your credit report. It may say "paid in full for less than agreed," "settled for less," or some other similar category. Some clients have reported negative FICO score drops from 50 points to 130 points. Major point drops are typically due to being in default, meaning you have fallen behind on your payments.
Credit Reports After a Short Sale:
Lenders report short sales differently and some do not report them to the credit bureaus at all. Negative credit, however, stays on your report for seven years.
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.
Deficiency Judgments After a Short Sale:
Judgments are often negotiated between the seller and the short sale bank. In some cases, if the home is your personal residence and was financed through purchase money, there is no deficiency judgment.
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 seven years?" If the bank sees you have had a foreclosure, your loan most likely will be denied. If you lie, you may be subject to investigation by the FBI for mortgage fraud.
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 sale. The wait for short sale approval can be from two to three 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 relief subject to certain conditions.
Taxation After a Foreclosure:
This is the same as taxation after short sale, except that some lenders immediately send out 1099s, even if the owner is exempt.
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