Short Sale Versus Foreclosure: Know the Facts

Short Sale Versus Foreclosure: Know the FactsSo many families have been affected by our failing economy, short sales and foreclosures have soared in recent years. You are not alone.

For those of you who live in or around Grand Rapids, MI, I work with a loss mitigation company called Rapid Real Estate Solutions. I have experience working with short sales and foreclosures and can assist and guide you through this often devastating process. Watch the videos at the end of this post to learn more about the short sale process and about how Rapid Real Estate Solutions can help you as well.

What is a Short Sale?

A short sale is when you are forced to sell your home for less than what you owe your lender.  Your lender must agree to a short sale as well.  Short sales are always the better option when compared to foreclosing,  if you have an option. Even when foreclosure is inevitable, you should still consider a short sale. It is critically important to get the short sale process started immediately once you realize you are falling behind in your payments or foresee that you will soon.

Short Sale Benefits

  • The greatest benefit is that you are in control, not the bank as in a foreclosure situation.
  • You won’t have the negative social stigma of being ‘foreclosed on’.
  • You don’t have to be short on your mortgage payments for the short sale process to begin to take effect, you just need a ‘hardship letter’.
  • It is less damaging to your credit report and credit score than a foreclosure.

Credit Effects From a Short Sale

This can sometimes be negotiated, but it will show a negative mark on your credit. The average credit score drop is between 50-130 points. But if you are default in payment, this could cause a major drop in your score. There are several factors that can influence this variable. Just remember, negative credit stays on your report for 7 years.

Loan Application Effects After a Short Sale

Loan applications do not ask questions about short sales, technically you can report that you sold your home. Short sales will not affect your ability to get approved for a loan.

What is a Foreclosure?

If you have bought a home using a home loan, your lender will have taken a security interest in the property. If you find that you cannot keep up with mortgage repayments on your home, the security interest gives the lender the right to proceed with a foreclosure. This can involve auctioning off your house and using the proceeds to recover their investment. If your property is not sold or the purchase is not enough to cover the lender’s loan, a deficiency judgement could be pursued against you. So there are no benefits of a foreclosure and it should be avoided at all costs.

Credit Effects From a Foreclosure

A number of sources have reported FICO score drops from 200 to 400 points after a foreclosure. Generally this credit score will remain on your credit report as a public record for 7 to 10 years. Sadly, if a prospective employer runs a credit check on you, your job application may be denied if you have a foreclosure on your record.

Loan Application Effects of a Foreclosure

If and when you fill out a loan application there will be a question asking you “Have you ever had a property foreclosed upon or given a deed-in-lieu thereof in the past 7 years?” You must answer truthfully or you could be charged with mortgage fraud. Unfortunately the chances of the bank denying you a loan are very high.

In closing, always obtain legal and tax advice before making a decision between a short sale or a foreclosure.

Here are a 4 short videos where I interviewed Donna Tashjian from Rapid Real Estate Solutions, she shares her insight into the short sale process.

Contact me if you live in West Michigan and have experienced financial problems causing you difficulty in making your mortgage payments, or even if you foresee this happening in the near future, as we can help you and get the process going in the right direction quickly.

What experiences have you had with a short sale or foreclosure and what would be your recommendations or words of encouragement?

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Best Regards,
Short Sale Versus Foreclosure: Know the Facts
Short Sale Versus Foreclosure: Know the Facts

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