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Whether you should do a short sale or let the home go to foreclosure depends on several factors. While for some homeowners, it is easier to throw up your hands and let the bank take your home, that might not be the wisest thing to do.
Short Sale Benefits
Here are a few benefits for doing a short sale that may not have occurred to you:
- You may sleep better at night knowing who is buying your home.
- You will spare yourself the social stigma of the “F” word, foreclosure.
- Contrary to popular belief, you can be current on your payments and still effect a short sale.
- Your home sale will be handled like any other home sale.
Buying Again After a Short Sale
Conventional loan guidelines may allow you to buy another home within 2 years. The wait for an FHA Loan is 3 years.
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 do not occupy the home, the wait to buy with a conventional loan is 7 years.
Affects on Credit After a Short Sale
How a Short Sale is reported can be negotiated with the lender. Options are Paid As Agreed, or Paid Settlement.
If it is reported as a paid settlement, it can make a credit score drop by 75-100 points and the item can be reported for 7% years from the date of first delinquency that led to settlement.
Affects on Credit After a Foreclosure
A Foreclosure can be reported as a Foreclosure or Repossession.Foreclosures and Repossessions can be reported for 7% years from the date of first delinquency that led to foreclosure. A Foreclosure will make a credit score drop immediately by 100-150 points in addition to points already lost due to delinquent payments.
If a Deficiency Judgment is filed in connection with a Foreclosure, the score may drop up to additional 100+ points.
Deficiency Judgments After a Short Sale
Judgments are often negotiated between the seller and the short sale bank. In some cases, such as California, if the home is your personal residence and was financed through purchase money, there is no deficiency judgement.
Deficiency Judgments After a Foreclosure
Banks are unwilling to negotiate deficiency judgments with the homeowner after a foreclosure. In California, for example, according to the California Association of REALTORS, a deficiency judgment may be filed regarding a hard-money loan if the lender forecloses under a judicial foreclosure versus a trustee sale or if the second loan is a hard money loan and the sale takes place as a trustee’s sale.
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 approval can be from 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.
I always recommend that you obtain legal and tax advice before making a decision between a short sale or a foreclosure. I can also refer you to some real estate agents who are short-sale experts who can help you explore all the options available to you.