Short Sales can benefit both the bank and the homeowner when an acceptable agreement can be reached.
For the home owner in distress, being able to sell the home without coming to the closing table with money he doesn’t have is a huge relief. Avoiding foreclosure by short sale does not have the huge credit damage a foreclosure carries. In fact a homeowner who maintains good credit after a short sale will be eligible to apply for a Fannie Mae loan as soon as 2 years after the foreclosure. Homeowners who lose a home for foreclosure are required to wait at least 5 years before they can reapply for a Fannie Mae loan.
The negative effects of having a foreclosure on one’s record never goes away, it becomes a permanent scar on one’s credit history.
Remember that credit is money ~Benjamin Franklin
A short sale is not recorded as a negative, because of the nature of the transaction. When the bank agrees to accept less than the owed amount, the debt is paid off in full upon sale. No black mark on the credit.
It is important to note delinquent payments will impact the credit score.
In addition to impacting credit, foreclosure may also have a negative effect on current and future employment. Many jobs require the applicant to have impeccable credit.
From the perspective of the bank, providing a short sale to the consumer means getting a non-performing asset gone from the balance sheet. A short sale provides a shorter, less expensive bottom-line than does the foreclosure process.
Assuming a homeowner has no choice but to sell the property and move on, a short sale makes sense despite the inherent risks associated with actually getting it done.
Real Estate Short Sales are Anything BUT Short!
Despite the obvious benefits for both sides, short sales are not easy to accomplish.
Mortgage financing in Colorado became very creative over the past decade. Most homeowners have more than one mortgage on their home. In addition, there are typically other liens on properties besides the mortgage. Liens for taxes, Home Owner Association dues are often present; all these need to be negotiated and cleared when a property is transferred to the new owner.
The process is tricky and often very messy. It takes determination and constant contact plus frequent communication with all involved.
The benefits outweigh the risks, so now what? Tomorrow I’ll explore how to get started on a short sale.
About the Author
Kristal Kraft
Kristal has been helping buyers and sellers in Colorado since 1984. She enjoys sharing her knowledge of the Metro Denver Real Estate market via blogging and in person while driving around the beautiful Rocky Mountain town of Denver! For fun, Kristal enjoys shooting things with a Canon. Visit Denver Photo Blog
Kristal Kraft
2 Comments
Your comment that a short sale is not a negative is INCORRECT in a lot of states. Although the lender agrees to the lesser amount, in many cases THE SELLER is still responsible for the deficiency balance left by the short sale. It can be marked as a collection account also. In addition it can be marked as “paid at less than the full amount” or “paid at less than the agreed amount” which are negative marks on your credit. Lastly, most short sale approvals only go thru AFTER mortgage payments are missed, which is very negative on your credit. Your advice could mislead many people into a bad decision. People should seek the advice of a mortgage professional, a real estate professional AND a REAL ESTAQTE ATTORNEY BEFORE making this very big decision.
Your statement is correct in that the bank can pursue the homeowner for a deficiency judgment. Transactions I have been involved with have required a signed agreement between the bank and the homeowner precluding the bank from pursuing a deficiency judgment in the future. The seller was fully aware of the possibilities of future liability therefore knew the importance of negotiating correctly at the onset.
If you reread my post you will see I did mention late payments would effect credit rating.
Once again, a short sale is more favorable on the credit than a foreclosure.
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