Short Sale vs Foreclosure
Many homeowners these days are ‘upside down’ (owing more on their home than it is worth) on their home and have recently lost a job, had a medical emergency, or other unexpected life occurrence that forces them to consider letting their home go to foreclosure. While the number of foreclosures nationwide is rising again after the brief moratorium imposed by the administration, a short sale may be a better way to proceed for many homeowners.
Benefits of a Short Sale
- You are able to select your own short sale real estate broker.
- You can be current on your mortgage payments and still do a short sale.
- You will probably be able to buy another home again sooner after a short sale vs a foreclosure.
- You can avoid the social embarrassment of a foreclosure.
- The effect on your credit score will probably be less from a short sale than a foreclosure.
- Some banks do not report short sales to the credit bureaus at all.
Drawbacks of Foreclosure
The result of a foreclosure is the bank repossessing your house. Not only will you lose your house, but the lender can get a judgment against you for the difference you owe plus the lenders costs for the foreclosure action. If that isn’t enough, your credit report will be in terrible condition for many years to come. 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. A number of sources have reported FICO score drops from 200 to 400 points after a foreclosure.
How long does a Short Sale take to accomplish?
Short Sale negotiations with a bank can easily take 2-3 months. Many banks still have not caught up with the wave of foreclosures that are occurring and have very high turnover in their credit management departments. We always suggest utilizing a short sale facilitator that has contacts with the banks and lenders, experience, and that we have worked with
before. Effecting a successful short sale for a client should NOT be a ‘learn as you go’ process for your real estate broker!
Exactly how does a Short Sale timeline proceed?
First week – Meet with your short sale real estate broker.
Contact and gather information required for short sale coordinator.
List your home for sale, the real estate broker should have professional pictures and videos tours taken of your home.
Prepare your home for showings to potential buyers.
Second week thru 6th week – By now you should have had multiple showings (between 10-20), and have a workable offer to submit to the bank.
Your real estate broker will be working with the short sale coordinator and you to gather any additional info and submit the offer to the bank.
The bank special assest manager (or their designee) will open a file for your home sale.
7th week thru 12th week – You should be fairly close if not approved for a
short sale at this time.
Hopefully the initial buyer will still be around.
If not, the bank can still approve the short sale as a predetermined price.
Your home will still be aggressively marketed to take backup offers from potential buyers.
13th week thru 20th week – This is the target timeframe and most likely time frame in which your house will actually sell and a closing will occur.
There are many factors that will affect the timeline above. What lender you have? What, if any, stage of the foreclosure process you are in. Will you have to substitute buyers? An experienced short
sale broker will be able to help, guide and and keep you informed thru this difficult process and will greatly increase the likelihood of success!
As always, always obtain legal and tax advice before making a decision between a short sale or a foreclosure.
