Short Sales: Why knowing the benefits over Foreclosure may help your future.

Distressed homeowners are overwhelmed, so it is important to ensure that they are well informed. Many people don’t know that there are options when they’re behind on their mortgage. The assumption in the past has been to walk away from the property and let the bank foreclose, as many homeowners were unaware of the short sale and its benefits. 

There are two primary benefits to a homeowner in opting for a short sale rather than letting the bank foreclose.

First, a foreclosure significantly damages the homeowner’s credit. Credit has become an even more powerful factor in different facets of life. A foreclosure can impede one’s ability to simply obtain a credit card or finance a piece of furniture. However, the impact can be as drastic as compromising one’s employment or security clearance. In addition, homeowners who have foreclosure on their record will generally not qualify for a new mortgage for at least 7 years. Although ones FICO score rebuilds over time, this DOES NOT remove the Foreclosure on your credit report for up to 10 years.

Second, banks may pursue homeowner for any deficiency owed after a foreclosure. The deficiency is the difference between what the bank was owed at the time of the foreclosure and the amount the property was sold for at the foreclosure. For example, if the homeowner owes $250,000 on the mortgage at the time of the foreclosure and the property sells in foreclosure for $125,000, then the banks could sue that homeowner for $125,000 (the difference between the amount owed of $250,000 and the foreclosure sale price of $125,000).

So why do people continue to only consider this option? The answer is simple, they just don’t know.

Short sales, reported as, “settled for less than full balance,” have a completely different impact on homeowners’ credit reports. The likelihood of them being able to qualify for another home loan is high after just 2-3 years and protect their employment, credit score, etc. In many cases, the deficiency of the mortgage is “waived,” by the lender and will not be pursued after the short sale is closed.  

The benefits of working with a short sale negotiation attorney and real estate agent will make this process for distressed homeowners graceful and lift many of the overwhelming feelings off their shoulders. 

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