Short Sale or Foreclosure?

Thursday, January 21st, 2010 | Real Estate

Short sale or foreclosure what is the difference? Which is better for me.

Being in the real estate business and dealing with these two terms all day, it is still a little surprising that so many people are still asking that question. But then, if you have no interest in real estate you probably don’t hear much about these two and very different financial situations.

I am writing this short article with the disclaimer that I have heard from a radio program. “Handle(SP) on the law.” This is marginal legal advice. My law degree is not in the mail. The only law classes I have ever taken were in the law school – The University of Hard Knocks!

Lets deal with the term “short sale.” The only thing short about a short sale is the mortgage company gets shorted it’s money from the borrower. The mortgage company will review the sale contract and decide if it will except the partial payment to allow the seller to sell the property without encumbrances. That doesn’t mean the mortgage company actually loses money, our tax money went to AIG and AIG might reimburse the lender. Many lenders have a very long approval process. As a Realtor(R), I am supposed to explain it could take weeks to months to complete a home purchase.

A seller in a short sale frequently but not necessarily has late mortgage payments hitting their credit during the sale process. Some banks seem to encourage late payments to even allow their sale approval process to begin. So the seller’s credit score will start to decline. After the property sale is complete the seller will probably have to wait 24 months to get a new mortgage.

A foreclosure is a different animal all together. The home owner is not a seller. The lender takes the property and evicts the former owner. The bank will sell the property. If it’s note is satisfied additional proceeds may in some states, the former owner may receive the excess proceeds. The former owner will have a very negative credit item added to the credit history.   Don’t expect to get another mortgage for five years!

For me personally, I feel even though a short sale can be a hassle, it is the least damaging of the three options. The foreclosure as far as I am concerned is worse than a bankruptcy. A person can get another mortgage after a bankruptcy much faster than a foreclosure if the borrower has obtained other credit and developed a good credit history after the bankruptcy.

There you have my humble explanation with very marginal and unprofessional legal advice.

No comments yet.

Leave a comment