Are you wondering whether you should Short Sale instead of letting your home go to Foreclosure? Although the question is a bit complex, the simple answer is YES and let me tell you why. First and foremost, by choosing to do a short sale you are helping to preserve your credit in several ways while a foreclosure will negatively affect your credit for 7 years.
How am I preserving my credit by doing a short sale?
In most cases the occupants looking to short sale their homes have already fallen behind on the payments and their credit has already been affected in a negative way. By continuing to not make payments your credit is continuously being affected until that account is settled. By doing a short sale the bank is agreeing to settle your balance for less than the amount currently owned on the current mortgage. Once the short sale is complete and the credit bureaus update your credit to show that the account is “settled”, your credit will likely increase as you are stopping the rolling lates that you have been accruing by not making the payments. Also by choosing a short sale over a foreclosure, you are in a better position to purchase a home in the future.
When doing a short sale you may accrue a deficiency judgment since the bank is settling for a lesser amount that is owned but this is often negotiated through the sale of the property. If the home is your primary residence and you live in CA there may not be any deficiency judgment if both loans were financed through purchase money.
If you qualify for the HAFA (Home Affordable Foreclosure Alternatives) Program, then there are additional advantages to choosing a Short Sale over Foreclosure. In a HAFA short sale, the servicer completely releases you from the mortgage debt unlike conventional short sales. This means that you are no longer responsible for that amount that is deficient. HAFA also has less of a negative impact on your credit than a traditional short sale and they may pay you $3,000 upon closing for relocation assistance.
What if I want to short sale but I’m still current on my payments?
In this case your credit may go down once the mortgage balance is settled with the lender although going this route does have its advantages. Although the lender agrees to settle the balance for less than what is owed, it will still likely to show on your credit as a derogatory item and could cause your credit score to drop. So you are asking, what is the advantage? The advantage to doing a short sale while you are current on your mortgage is that you may be eligible to purchase another property right away while doing a short sale once you are behind on the payments requires that you wait a minimum of 2 years (depending on the type of loan).
What happens if I let my home go to foreclosure?
If you choose to go to foreclosure your credit will be negatively affected for 7 years. In addition, you will not be able to purchase another home for a minimum of 4 years. Also, banks are not likely to negotiate any deficiency judgments with the homeowner once a property has foreclosed.
What are the tax consequences to doing a short sale versus a foreclosure?
Let me start by saying that we recommend you speak with a tax professional regarding this matter so that you are getting up to date accurate information. In short though, if it is your personal residence you are likely exempt until the end of 2012.
What should I do if I’m considering doing a Short Sale?
If you are considering a short sale, we would love to speak with you so please give us a call at 714-376-2711 or email to firstname.lastname@example.org so we can answer your questions directly and help lead you in the right direction. We look forward to your response.