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What is a Short Sale?

Foreclosure on a home has consequences for the family, the community, the housing market, and the economy. However, the option for a short sale provides a way for troubled homeowners to prevent foreclosure and many of the dire penalties involved.

A short sale is an agreement in which your mortgage lender agrees to accept a payoff on the loan for less than the balance. Many lenders agree to a short sale because they receive more of the loan balance in comparison to the amount they would gain from selling the property following a foreclosure. This process also aids in maintaining home values in the community the property is located and helps the homeowner maintain a better level of credit compared to a foreclosure. In most instances, homeowners considering a short sale must meet specific criteria to qualify: you must be behind in your mortgage payments, provide evidence of economic hardship, and have little or no equity in the property.

A short sale is not a typical real estate transaction. Most real estate transactions involve the home seller and their real estate agent, the buyer and their lender. In a short sale situation, all of those parties in addition to the seller's loan servicer, a housing counselor, any junior lien holders, mortgage investors, and insurers may be involved too.

With so many parties involved in a short sale, the process can be difficult to complete without a qualified REALTOR^® to help guide you and act as a liaison between all of the parties involved. You will want the advice and expertise of a REALTOR^® who has your best interests in mind and will expedite the short sale transaction. It is essential to have a REALTOR® who won't allow you to miss a detail that could delay closing the transaction in a timely manner and to the specifics required by all parties involved. A qualified REALTOR® with experience in short sales will also be able to find a buyer to complete the transaction. Homeowners agreeing to a short sale should also consult a tax expert and obtain the services of an attorney to help protect themselves from any future claims by the lender.

What is the difference between a Short Sale and a Foreclosure?

Review the following comparisons between short sales and foreclosures for a better understanding of why short sales are a better option for most homeowners. While a short sale is a complicated process, the outcomes of your patience and diligence are worth it in the end!

What are the implications to my credit score? What are the implications to my credit history? Who decides if my home should undergo a foreclosure or a short sale? How long will I have to wait to buy another home? What will be the effects on my future loans? Does it affect my employment opportunities? How does a short sale versus a foreclosure affect the deficiency judgment? What are the implications to my credit score? Following a successful short sale your mortgage will be reported on your credit score as either paid or negotiated, lowering your score as little as 50 points and affecting you for only 12 to 18 months. After a foreclosure, however, your credit score can lower as much as 300 and usually at a minimum of 250 points and affects your score for over three years.

What are the implications to my credit history? A short sale is often reported as paid in full and is not as destructive to your credit history. A foreclosure will remain on your credit history for 10 years or more and will remain as public record.

Who decides if my home should undergo a foreclosure or a short sale? In both short sales and foreclosure, the decision is made by your mortgage lender. The most important aspects to getting a lender to agree to a short sale, and saving you the more damaging credit implications of a foreclosure, is to prove that you have no other way to pay the mortgage and that the amount received from a short sale is the fair price of the market. Lenders who believe they can receive more by taking possession of the home in a foreclosure and selling it themselves will not agree to a short sale.

How long will I have to wait to buy another home? Most mortgage lenders report that for homeowners who have undergone a previous short sale they may get a reasonable interest rate in less than two years. Fannie Mae guidelines allow a short seller to apply for a new loan immediately if payments were kept current and had no 60-day late payments on their record.

What will be the effects on my future loans? For most mortgage lenders you will not be asked to declare or be questioned regarding a short sale on any standard loan application (1003). In regards to foreclosure, you will be asked on any future standard loan application (1003) if you have had a property foreclosed in the last seven years, therefore affecting your rate. Fannie Mae backed mortgages will be available to you following a short sale after two years. Fannie Mae backed mortgages will not be available to you for at least five years if you have lost your home due to a foreclosure.

Does it affect my employment opportunities? A short sale does not appear on a credit report and will not challenge your current employment status. In comparison, if you have a foreclosure on your credit report, some employers consider it a reason for termination or reassignment since many run credit checks on employees for certain positions. A foreclosure can be extremely harmful to your chance of being selected for a new job if your credit report is taken into consideration.

How does a short sale versus a foreclosure affect the deficiency judgment? If your short sale is handled successfully, the lender may give up the right to pursue a deficiency judgment against you. If the lender does pursue a deficiency judgment against you after a successful short sale, the amount will be considerably lower because your home was sold at a price closer to market value than that of an REO (Real Estate-Owned) sale. In all foreclosures, with the exception of those states without deficiency, the bank has the right to file a deficiency judgment against you. Since your foreclosed home will have to go through the REO process if not sold at auction for a lower sales price, this results in a higher deficiency judgment against you.

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This site is sponsored by Cliff Roe of Cliff Roe Realty, Inc. at www.CliffRoe.com

Cliff Roe Realty, Inc

7777 131st St N, Suite 16

Seminole, FL 33776

Office: (727) 595-7295

Cliff Roe's Cell (727) 644-7209

Disclaimer: The information provide on this website should not be construed as legal or financial advice. The content is intended to provide general information about the short sale and foreclosure process, and should not be acted on without the council of a qualified REALTOR®, attorney or tax expert.

HOME :: AVOID FORECLOSURE :: WHAT IS A SHORT SALE :: FAQ :: GETTING STARTED :: ABOUT US :: CONTACT