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There are many benefits to a Short Sale versus a Foreclosure for a California homeowner, but there also many drawbacks to a short sale that need to be considered before deciding on the best course of action. A short sale is a great option for California home owners who need to sell their home and owe more than their property is worth, but a short sale is not for everybody.
Benefits of a Short Sale
- A short sale will not drop the FICO score as much as a foreclosure. It is estimated a foreclosure will decrease a FICO score by as much as 250 points. The estimated decreased for a short sale is 150 points.
- The seller will be able to more quickly turn around and purchase another home after a short sale. Fannie Mae announced that effective July 1, 2010, short sellers can purchase a home with a Fannie Mae loan at 80% loan to value only two years after the short sale, and at 90% only four years after the short sale. With extenuating circumstances, Fannie Mae will allow a purchase at 90% loan to value only 2 years after the short sale. FHA requires a three year wait after a short sale, but will lender to 96.5% loan to value
- A short sale preserves some dignity for the seller. The seller will not have a “Notice of Trustee Sale posted on their home while they still live in the neighborhood.
- Working out a short sale may allow the seller to avoid bankruptcy. It is important to work with someone with experience with short sales who knows how to negotiate with the lender (or lenders if there is subordinate debt as well) for Full Satisfaction of all debts.
Drawbacks of a Short Sale
- Short sales are not exactly “quick, although this can vary depending on the lender or lenders being paid off. Waiting for the banks to respond can be a very frustrating process.
- There is no guaranty the bank will accept an offer. Last second maneuvers by the bank are not out of the norm. More frustration.
- The bank will want to see income and asset documentation from the seller to verify there is a true reason for the short sale. If the seller has significant assets, the bank may go after those assets or prevent the short sale from going through.
Figuring our whether a short sale is the best solution will take research. When a San Jose home owner finds themselves in a difficult situation, whether it be because of a job less, decrease in pay, or illness, combined with a drop in property value and even worse, an increase in mortgage payments, it is important to gather as much knowledge as possible. Ask me for a referral to local San Jose real estate expert who offer guidance in how to deal with the many options. The home owner should consult with their trusted attorney, accountant, real estate agent, and loan officer. Consider all options carefully, but most importantly, don’t do nothing.