Foreclosure vs. Short Sale and What it Means to You
Facing the prospect of foreclosure or short sale on your home is not easy. So many people are struggling with day-to-day expenses, job loss, health issues and, while it's difficult, you may have to consider how to decrease your debt. If you determine that you must sell your home, or risk foreclosure, Integrity Residential Brokerage, licensed in both Massachusetts and New Hampshire is here to help.
Here is a brief explanation of each process:
Foreclosure - In most cases, a lender obtains a security interest from the borrower who pledges the real estate to secure the loan. When the borrower fails to comply with the terms of the mortgage, the lender has the right to foreclose. Foreclosure is the legal process by which a lender obtains a court ordered selling, or repossessing, of real estate. Furthermore, if the promissory note was made with a recourse clause, if the sale does not bring enough to pay the existing balance of principal and fees, the lender can file a claim for a deficiency judgment.
- Typically, a borrower whose home goes into foreclosure will not qualify for an FHA home loan for 5 years.
- On any future mortgage application, you must answer "yes" to the question "Have you had a property foreclosed upon or given title or deed in lieu thereof in the last 7 years?"
- Some borrowers credit will be impacted more than others for the same payment problem. Your credit score is likely to decrease anywhere between 100-300 points.
- Employers often run credit checks on potential employees
- Depending on the loan type, banks can go after more money from the homeowner if the sale price doesn't cover the mortgage amount due which is known as a ‘deficiency judgment'.
- A Foreclosure can show up on your credit history for 7-10 years.
Short Sale - is a sale of real estate in which the proceeds fall short of the balance owed on the loan. When the borrower can't pay the mortgage loan on their property, the lender may decide that selling the property at a loss is better than proceeding with a foreclosure. This agreement doesn't necessarily release the borrower from the obligation to pay the remaining balance of the loan, which is known as a deficiency, but many times it is possible to negotiate no promissory note or deficiency judgment.
- Typically, after 2 years, a homeowner whose home is sold in a short sale will qualify for an FHA loan.
- There is no question on a mortgage application regarding whether you've ever done a short sale.
- Late payments will show up on your credit report but short sales are usually not reported to the credit bureau.
- Ask your lender whether they will report the short sale as "paid less on a settled account" vs. "settled/paid in full" as this could affect your credit score.
- Usually, it will take approximately 18 months of consistent, on-time credit payments to restore your credit score.
In conclusion, a Short Sale is far less damaging than a foreclosure. The lender will often allow a short sale if they feel the financial loss is lower than that of a foreclosure proceeding. As a borrower, you can avoid having a foreclosure on your credit report and the short sale process is typically faster and less expensive.
If you think you may need to sell your home "short", the time to start the process is NOW! Short sales take months to process through your lender. So, if you want to lessen the risk of foreclosure, begin by picking up the phone and calling us today at (978)433-0000.
Integrity Residential Brokerage located in Pepperell, MA is here to assist you with your real estate needs. So far, we've had a 100% success rate with gaining lender approval on our short sale listings. If you are experiencing financial distress and need to sell your home, please call right away!
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Information deemed reliable but not guaranteed. Please note that individual listings periodically mentioned in this blog are accurately described in terms of availability and price at the time of the posting. Because properties are constantly coming on and off the market, please contact Catherine for the latest information on those that are of particular interest to you.
Catherine Condon, Broker MA & NH
