Short Sale vs Foreclosure: The Facts

When trying to decide between a short sale and foreclosure, sometimes it’s easier for homeowners to just throw in the towel and let the agent do the work. It is important to seek legal advice from a professional before making a decision, but allowing the bank to have complete control may not be the wisest decision. By becoming more informed about short sale vs. foreclosure, you will be able to make a more confident and educated decision regarding your home.

Process of Foreclosure

A foreclosure occurs when a lender takes ownership of the property and removes the borrower. This occurs when the borrower cannot make the mortgage payments on a consistent basis. Foreclosures can be done through a real estate agent or sold at an auction. The lender can then sell the foreclosed property and collect and recover the unpaid mortgage balance.

This process begins when the lender doesn’t make the mortgage payment for three to six months. The lender will notify the borrower of foreclosure and the reinstatement period, which allows the borrower time to resolve any disputes. The mortgage balance then needs to be paid off within three months, and if not, a notice of sale will be given to the homeowner.

Process of Short Sale

A short sale can be used as an alternative to a foreclosure because it bypasses the extra costs and fees for both parties involved, but it does require a large amount of paperwork. A short sale occurs when the homeowner cannot make mortgage payments and owes more than the current market value of the property. Lenders are often hesitant to accept short sale offers because the proceeds from selling the house often equate to less than the mortgage payment, which is known as a deficiency. Homeowners may still be obligated to pay these deficiencies even after a short sale agreement. The homeowner will put the house on the market and if he or she receives an offer, the bank also needs to approve it. The short sale process can take three to six months to closer. If a homeowner is experiencing hardship such as divorce, unemployment, family death, or job relocation, banks will be more likely to approve a short sale.

Effects on Credit Rating

Unfortunately, foreclosures can cause the borrower’s credit rating to decrease by 200 to 400 points and will remain on the report for seven years. On the other hand, short sale usually only causes a credit rating to fall 50 to 130 points and a credit report will state that the short sale was “settled,” “paid as agreed,” or “paid in less than full.”

Future Homeownership

After a home foreclosure, an individual can buy a house in five years with some restrictions, or in seven years with no restrictions. After a short sale, an individual may be able to buy a home immediately and the lender will not require the loan to be paid back.

Purchasing a Foreclosed or Short Sale Home

Typically, short sales home are better to buy than a foreclosed home because the property has been inhabited. The house and utilities have been maintained, but short sales can take a large amount of time to close. On the other hand, buying a foreclosed house is usually quicker and they are sold at lower prices.

For more info, whether you’re thinking about selling or buying a short sale/foreclosure, visit: https://www.veitengruberlaw.com/Real-Estate-Transactions/

              

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