| During 2009, real estate sales fell unbelievably. Home | | | | payments that affect credit report scores, not the |
| prices fell and instead of reaping profits in real estate, | | | | short sale. |
| many people were left holding an empty bag. Real | | | | Which is Best? Foreclosure or Short Sale: |
| estate prices dropped, financing was hard to get, | | | | Deciding whether to let your home go through |
| people lost jobs, and the market was saturated with | | | | foreclosure or attempting a short sale needs to be |
| foreclosures and short sales. | | | | decided carefully. Trying to save your credit score, |
| Some home owners stopped making or could not | | | | through a short sale, might not might not be |
| afford to pay their house payments. Job loses ruined | | | | advantageous. According to the 'Score Factor Code' |
| credit history for many, and they could not refinance. | | | | delinquent borrower's receive no credit score |
| Along with declining credit ratings, many were unable | | | | advantage between a short sale over a foreclosure. |
| to work out financing alternatives with their lenders. | | | | However, it appears less credit report damages follow |
| Basically, three options are available: sell the property | | | | a short sale, involving late payments, than damages |
| before foreclosure is final, give a deed-in-lieu of | | | | from foreclosures. People with credit delinquencies |
| foreclosure to the lender, or let the property go to | | | | might be able to buy another home within a period of 2 |
| foreclosure. Sometimes, if the house is worth less than | | | | years, versus the 5-7 years from foreclosures. |
| the outstanding mortgage balance, buyers and | | | | Foreclosure and Short Sale Taxes |
| investors can negotiate with a lender about short sales | | | | And, then along comes the IRS! Transferring the title to |
| before the property foreclosure is complete. | | | | your home voluntarily (warranty deed or grant deed), |
| Short Sale Basics: | | | | or involuntarily (foreclosure), makes no difference in the |
| This type of sale can happen if the lender agrees to | | | | eyes of the IRS. As far as they're concerned, you sold |
| accept less than the amount owed on the home | | | | your home, and may be taxed. Selling your home at a |
| because the property does not have enough equity to | | | | loss, on a short sale, or through foreclosure, makes |
| sell and pay the costs of a sale. However, not all | | | | you liable to be facing taxes. |
| lenders will negotiate on a short sale. | | | | However, people who have owned their property for |
| For instance, home owners cannot just decide of offer | | | | a scant two years will, probably, end up with a loss. |
| their property on a short sale. In the past, lenders | | | | These sellers will realize losses because of real estate |
| wouldn't consider this kind of sale if payments were | | | | brokerage expenses and lawyers. And, sellers will not |
| current, but changes came about due to the turmoil in | | | | be allowed to deduct the losses. To the IRS, it makes |
| the housing market. Usually, lenders will be agreeable | | | | no difference whether sellers were forced to sell |
| to negotiations if home payments are in arrears. But, if | | | | because of job loss or change, or health reasons. |
| there are cash assets, sellers must realize that lenders | | | | Many situations can cause people to lose a home, but |
| might tap into those accounts. | | | | signing away ownership that can destroy credit, and |
| A short sale, usually listed through MLS (Multiple Listing | | | | strip an owner of dignity is one of the most difficult. A |
| Service), involves advertising the home for sale. Real | | | | short sale is one alternative to bankruptcy or |
| estate agents might hold open houses, and bring | | | | foreclosure. |
| potential buyers to view the home, and owners can be | | | | Not all lenders will allow or accept less than the loan |
| subjected to many low ball offers. All in all, a seller's life | | | | amount, especially if foreclosure would mean more |
| is disrupted by needing to leave the premises when an | | | | financial sense. Additionally, not every seller or property |
| agent calls with an appointment, and having strangers | | | | will qualify within lender requirements. |
| wander through their homes and among their | | | | Requirements vary from state to state, and |
| possessions, in hopes of selling the home. | | | | borrower's are subjected to submit various |
| Many sellers question if this type of sale is less | | | | documentation, but the following should portray a good |
| damaging to credit rating than foreclosure. Depending | | | | idea of what to expect. |
| on state laws, while in foreclosure, a seller can possibly | | | | Be prepared to make many phone calls before you |
| stay in the property, rent free, for four months to a | | | | get connected with the person who is responsible for |
| year before being evicted. However, this one fact | | | | short sales. You want to speak to the supervisor (the |
| does not mean foreclosure is better than a short sale. | | | | one capable of making a decision), not the real estate |
| What About Your Credit Rating? | | | | agent, or liaison. |
| Sellers take a big hit on their credit reports by going | | | | Compose and submit a letter of authorization to your |
| through foreclosure, or handing the lender a deed-in-lieu | | | | lender. This will give the lender permission to speak |
| of foreclosure, providing they are more than 30 days | | | | with interested parties about your loan. Some things |
| behind in payments. Examples of the points that will be | | | | that need to be included in the letter are: |
| lost on a FICO score are: | | | | - Property Address |
| Foreclosure or Deed-in-Lieu of Foreclosure: | | | | - Loan Number |
| Credit rating is affected equally by both of these | | | | - Your name and the current date |
| solutions. Depending on the condition of the seller's | | | | - The name of your agent, and his / her contact |
| credit, they can expect to take a hit of 200 to 300 | | | | information |
| points on their credit rating. Example: If a seller's FICO | | | | Preliminary Net Worksheet to outline the sale price, |
| score was 650 before foreclosure, it might go as low | | | | what you expect to receive, unpaid loan balance(s), |
| as 350. | | | | outstanding payments, late fees, and anticipated real |
| Short Sale Effects: | | | | estate fees. Your real estate agent should be able to |
| Providing the payments are more than two months | | | | provide a worksheet of this type for you. |
| overdue, a seller's credit score will be negatively | | | | Hardship Letter: This letter needs to be a factual story |
| impacted the same as a foreclosure. The credit report | | | | of what caused this financial bind by making a plea to |
| will indicate a pending foreclosure status, and the result | | | | the lender to accept less than full payment. The |
| could be a 200 to 300 point loss. Example: A FICO | | | | sadder, the better, but be honest. Don't expect a lender |
| score could be lowered from 700 to 400. | | | | to be sympathetic to dishonesty or other seedy |
| Can I Buy Another Home? | | | | behavior. Additionally, the following will be needed: |
| Foreclosure or Deed-in-Lieu of Foreclosure: | | | | - Proof of Income and Assets |
| Sellers hoping to purchase another home after | | | | - Copies of Bank Statements (3 months or more) |
| foreclosure will need to wait approximately 24 to 72 | | | | - Comparative Market Analysis (your agent should be |
| months, depending on their credit rating. | | | | able to provide this for you) |
| Short Sale: | | | | - Listing Agreement |
| Depending on a FICO score, a seller might be able to | | | | If everything goes well, the lender might approve your |
| secure an institutional loan for another home within two | | | | short sale. It's possible to ask that your credit situation |
| years. However, it's not likely that a person can buy | | | | be kept from credit reporting agencies, but the lender |
| with a good interest rate in less than two years, and | | | | is under no obligation to omit submitting an adverse |
| Fannie Mae guidelines require 24 months' seasoning. | | | | credit information just because you ask. |
| Sellers can apply for a new loan, immediately, to | | | | A short sale can help sellers get out from under a |
| purchase another home if the seller's payments were | | | | mortgage, however, they might not always be |
| current, have no delinquencies in excess of 30 days, | | | | pleasant transactions. |
| and did not agree to repay the debt relief. It's the late | | | | |