Short Sales Vs. Foreclosure
A home foreclosure can cause a great deal of anxiety for a homeowner and serve to ruin his credit along with costing him his long term property investment. A short sale of his home, if his lender agrees to it, can provide a way to avoid the financial black mark of a foreclosure while still paying off a large portion of his mortgage.
Other People Are Reading
-
Appearance in Court
-
Foreclosure proceedings usually require you to appear in court. During this court appearance, your lender is required to prove your delinquency on your mortgage. You may also present any evidence in your favor if you believe foreclosure proceedings have been filed in error. Once a judge makes a determination on your lender's right to possession of the home, you are legally obligated to abide by that decision. A short sale is different than a foreclosure in that no court appearance is required. A short sale is an agreement between you and your lender and does not involve the court system.
Who Sells the Property
-
In a foreclosure, your lender is required to auction off your home to the highest bidder. Your lender is also required to advertise your home for sale for a predetermined amount of time. In a short sale, you are in charge of selling your home, usually with the assistance of a short sale real estate agent. Because a short sale brings in a lower amount of money than the property is worth, you must get your lender to agree to the short sale before you may legally sell the property to avoid foreclosure. According to financial information website Debt Kid, the longer you wait to suggest a short sale to your lender, the less likely the lender is to accept it.
-
Impact to Credit Score
-
A foreclosure significantly damages your credit for up to 10 years. This may make it difficult or impossible to secure new lines of credit to purchase new property, including a new car or new home. A short sale also has a negative impact on your credit but does not cause as much damage as a foreclosure. According to Debt Kid's website, the credit hit you take from a short sale can be overcome faster than that from a foreclosure, if you are able to keep other credit accounts open and pay them on time.
Deficiency Judgments
-
In some states, if your home is foreclosed on and the bank does not recoup enough money in the auction of the home to cover the cost of your mortgage, the bank may sue you to recover the difference. This is referred to as a deficiency judgment. The Mortgage Forgiveness Debt Relief Act allows a debtor who sells her home by means of a short sale from 2007 through 2012 protection from having to claim the difference on her mortgage as income. Under this law, a debtor is protected from claiming up to $2 million in the difference of her mortgage. The law also protects the debtor in a short sale from a deficiency judgment.
-
