Foreclosure or Shortsale?

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Bank of America, Chase, and Wells Fargo are all offering owners who are underwater or behind on their mortgage cash toward relocation assistance.  The amount can range from $2500 to $30,000 dollars!  This relocation incentive is meant to motivate delinquent sellers who currently still live in their home help with relocation expenses.  This will not apply to homeowners renting their underwater home or investors owning underwater rentals.

This is an addition to money offered via the government program HAFA, where home owners are eligible for up to $3,000 dollars for relocation assistance.

Please remember that currently, this incentive is potentially tax free (always seek the advice of your tax professional) under the Mortgage Tax Relief bill but this bill is set to expire December 31st, 2012.  If it is not renewed, short sales next year could be subject to tax on the forgiven debt!

If you have questions about the short sale process, contact me to help you review your current situation and what programs are available to you!  I have 100% success in closing short sales with all major lenders over the last 4 years and can also provide resources to see if you qualify for the HARP 2.0 refinance program.  Don’t wait!  Questions are free, foreclosure cost years and years of credit damage.

There are actually 9 ways to avoid foreclosure.  A short sale is one way.  The table below outlines the difference between a short sale and a foreclosure.  If you have questions about your specific situation, I offer a one-hour, no-hassle, no-obligation consultation to review your specific needs.  Contact me.

ISSUE

FORECLOSURE

SUCCESSFUL SHORT SALE

Future Fannie Mae Loan-Primary Residence

(Effective 5/21/08)

A homeowner who loses a home to Foreclosure is ineligible for a Fannie Mae backed mortgage for a period of 5 years.

A homeowner who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed mortgage after only 2 years.

Future Fannie Mae Loan-Non Primary

(Effective 5/21/08)

An investor who allows a property to go to Foreclosure is ineligible for a Fannie Mae backed investment mortgage for a period of 7 years.

An investor who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed investment mortgage after only 2 years.

Future Loan with any Mortgage Company

On any future 1003 application, a prospective borrower will have to answer YES to question C in Section VIII of the standard 1003 that asks “Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?” this will affect future rates.

There is no similar declaration or question regarding a short sale.

Credit Score

Score may be lowered anywhere from 250 to over 300 points. Typically will affect score for over3 years.

Only late payments on mortgage will show and after sale mortgage will be reported as paid or negotiated. This will lower the score as little as50 points if all other payments are being made. A short sale’s affect can be a brief as 12 to 18 months.

Credit History

Foreclosure will remain as a public record on a person’s credit history for 10 years or more.

Short sale is not reported on a credit history. There is no specific reporting item for ‘short sale’. The loan is typically reported ‘paid in full, settled’.

Security Clearances

Foreclosure is the most challenging issue against a security clearance outside of a conviction of a serious misdemeanor or felony. If a client has a foreclosure and is a police officer, in the military, in the CIA, Security, or any other position that requires a security clearance in almost all cases clearance will be revoked and position will be terminated.

A Short Sale on its own does not challenge most security clearances.

Current Employment

Employers have the right and are actively checking the credit regularly of all employees who are in sensitive positions. A foreclosure in many cases is ground for immediate reassignment or termination.

A short sale is not reported on a credit report and is therefore not a challenge to employment.

Future Employment

Many employers are requiring credit checks on all job applicants. A foreclosure is one of the most detrimental credit items an applicant can have and in most cases will challenge employment.

A short sale is not reported on a credit report and is therefore not a challenge to employment.

Future Employment

Many employers are requiring credit checks on all job applicants. A foreclosure is one of the most detrimental credit items an applicant can have and in most cases will challenge employment.

A short sale is not reported on a credit report and is therefore not a challenge to employment.

Deficiency Judgment

In 100% of foreclosure (except in those states where there is no deficiency) the bank has the right to pursue a deficiency judgment.

In some successful short sales it is possible to convince the lender to give up the right to pursuit a deficiency judgment against the homeowner.

Deficiency Judgment (amount)

In a foreclosure the home will have to go through an REO process if it does not sell at auction. In most cases this will result in a lower sales price and longer time to sale in a declining market. This will result in a higher possible deficiency judgment.

In a properly managed short sale the home is sold at a price that should be close to market value and in almost all cases will be better than an REO sale resulting in a lower deficiency

1 Fannie Mae Announcement 08-16: Michael A. Quinn, Senior Vice President, Single-Family Risk Officer
2 Fannie Mae Announcement 08-16: Michael A. Quinn, Senior Vice President, Single-Family Risk Officer
3 Short sales are currently not explicitly reported on a credit report.
4 Short sales are currently not explicitly reported on a credit report.
5 Short sales are currently not explicitly reported on a credit report.
*Availability varies by lender
**Does not offer second-property loans
SOURCES:
MORTGAGEE LETTER 09-52, 4155.1 CHAPTER 4.C.2 effective date Dec 16 2009
http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/2009ml.cfm

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