Short Sale Benefits
Here are a few benefits for doing a short sale versus allowing your home to go into foreclosure
- You will avoid the stigma of a foreclosure. Unlike a foreclosure, which is a legal action against you, in a short sale, you and your bank are working together in a joint effort to avoid foreclosure.
- You have the opportunity to review the sales contract and select the buyer you would like to work with.
- Your home sale will be handled like any other home sale, the only difference is that your lender must agree to the sales terms.
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. The wait for an FHA loan is 3 years.
If your payments are in arrears yet a 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.
Buying Again After a Foreclosure
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 did not occupy the home, the wait to buy with a Fannie Mae insured loan is 7 years.
Affects on Credit After a Short Sale
It is very difficult to determine how a short sale will affect your credit. In some cases, the lender will report the short sale as “paid as less than agreed,” which means you credit score may drop anywhere from 50-100 points due to being delinquent in your payments. In other cases, the lender may file a deficiency judgment (see below) against the seller for the unpaid mortgage balance owed and this can result in a credit score drop of 200-300. It is best to consult a real estate attorney to discuss your case.
Affects on Credit After a Foreclosure
After a foreclosure, your credit score may drop anywhere from 200 to 400 points. The foreclosure will be reflected on your credit score as a public record for 10 years.
Credit Reports After a Short Sale
All lenders report short sales differently and some do not report them to the credit bureaus at all.
Credit Reports After a Foreclosure
All foreclosures are reported to credit bureaus which can affect your ability to not only get future loans but can also hinder future employment
Deficiency Judgments After a Short Sale
Lenders reserve the right to go after a seller for the money owed on the home loan even if the bank agreed to the short sale. In other words, the lender can allow the short sale and release the lien on the home allowing the sale to go through, but then turn around and file a deficiency judgment against the seller and demand payment for the money that was forgiven. That’s why it is important to discuss your case with a real estate attorney before making any decisions about selling your home through a short sale. When entering into a short sale agreement with the lender, it is also critical to get agreement in writing from the lender that the short sale will forgive all debts and no future deficiency judgments will be filed.
Deficiency Judgments After a Foreclosure
In some cases, a lender can come after the seller for money owed after a home has been foreclosed upon. It is important to consult a real estate attorney to find out your rights based on the particulars of your case.
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 7 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 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 short sale. The wait for short sale is usually 2 to 3 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
The mortgage debt relief passed in 2007 means that whatever debt you’ve been forgiven in short selling your home will no longer be taxed as income in some cases. Investors however, do not benefit from this legislation. It is best to consult a real estate tax attorney for the particulars of your case
Taxation After a Foreclosure
For tax purposes, a foreclosure is treated the same as a foreclosure. However, lenders will most likely send out a 1099 showing the forgiven debt as income even if the home owner is exempt. Again, it is best to consult a real estate tax attorney for your particular case.
