4 Key Reasons to DO a Short Sale vs. Foreclosure

19 Jan

man weighing options

Weigh your options carefully....

Short Sale Vs Foreclosure

Sometimes you may wonder….

“why bother with the hassle of a short sale when I can just let the bank foreclose…”

I would like to examine the key effects the decision to choose a short sale over a foreclosure can have on your life.

1.  Waiting period before you can own a home again

One of the most important factors when deciding to do a short sale vs foreclosure is that with a short sale you can expect to be eligible to purchase a home again by as much as 5 years sooner than when allowing the bank to foreclose.  I am not even taking into account those sellers who, according to the FHA loan guidelines, are eligible for a FHA loan immediately after completing a short sale (see here).

2.  Damage to your credit score/ credit history

We live in a world where your credit score can mean a lot to the quality of your life.  With a foreclosure your credit score can be lowered anywhere from 250 to 300 points and will remain on your credit history for 7-10 years.  With a short sale, I have been told by some lenders that, all that will typically show up are your late payments and the short sale is not reported on your credit history, it would show up as “Paid as negotiated” or “Paid in full for less then agreed”.  As you can see credit score can be affected pretty heavily when choosing a short sale vs foreclosure.

3.  Damage to current/future employment

Some employers for people with sensitive jobs do actively check on their employees credit reports and if a foreclosure comes up it  could severely impact their position.  For people whose jobs require a security clearance like being in the military, CIA, or police officers, the issue is even more dire as almost all the time a foreclosure is grounds for immediate revocation of the security clearance and in effect their jobs as well.  Since a short sale is not reported to your credit it should not affect your current or future employment opportunities.

4.  Chances of being pursued for a deficiency judgement

In California, since the passing of SB 931 which went into effect 01/01/2011, your first lien holder cannot obtain a deficiency judgement after foreclosure (non-judicial) or a short sale.  So the real meat and potatoes of this questions is for anyone who has a 2nd lien on their property.  After a foreclosure your 2nd lien holder has 4 years to file a deficiency judgement against for the entire unpaid balance.  In a short sale your Realtor’s job, if you are using a qualified real estate professional, is to negotiate with your 2nd lien holder to have the deficiency waived when they agree to a short sale.  This is not always possible, however, even if they do not agree to waive the deficiency it is almost always a smaller deficiency after a successful short sale.  Also don’t forget that it is NEVER possible to negotiate away the deficiency if your property forecloses.

If you would like to discuss your unique situation in a completely confidential, no obligation, consultation please give me a call today.  916.585.3636.  Or you can always email me Peter@PeterParkerTeam.com

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