Welcome to San Diego Blog | March 26, 2010
Short Sale versus Foreclosure…which is better for you?
If you are experiencing a difficult time making your mortgage payment like many people, you may be considering a shortsale or foreclosure. There are many advantages and disadvantages to consider when deciding which one is right for you.
The biggest advantage of opting for a short sale over a foreclosure is that in a short sale the debt is settled or “agreed upon” and you no longer owe the bank money in most cases. If you allow your home to go into foreclosure, there is a good chance you will be liable for the deficiency if the bank files a judicial foreclosure.
Another advantage of a short sale is that your credit score is negatively impacted much less than in a foreclosure. Provided you have credit history, a short sale will only negatively impact your credit for approximately 2 years whereas a foreclosure will negatively impact your credit for seven years and can ding your score up to 400 points.
The recovery time to be able to qualify for a home loan is shorter with a short sale. As long as the rest of your credit is satisfactory, Fannie Mae & Freddie Mac guidelines stipulate only a 24 month waiting period after a short sale. Borrowers who have completed a short sale can qualify to buy a home again in just 2 years. Borrowers who file bankruptcy or go through foreclosure have to wait up to 7 years to qualify to buy another home.
When it comes to qualifying for a mortgage, the banks severely penalize those who go the route of foreclosure or bankruptcy, and reward or encourage those who complete a short sale, which they view responsible manner of handling the circumstances.
One more great advantage to completing a short sale is that the government is starting to promote short sales and view them as acceptable. The Obama administration is actually paying all parties involved to go through with a short sale. This includes the distressed seller and the lien holders. The Federal Government is also offering tax forgiveness and the State is working on their tax forgiveness plan.
If you have recourse loan, you may be liable for income taxes on the lender’s loss (same as in a foreclosure) but you will not be liable for the deficiency ( if you qualify for the “Insolvency” exclusion, you will avoid the income taxes as well).
Short sales can be tricky so let us guide you through this tricky process. With a full time short sale processor and attorney on staff, we have the resources to get your short sale done.
Give us a call to find out how to get started: 619-309-8011