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Tuesday, January 19, 2010The differences between a Short Sale and Foreclosure
In our current economy 1 in 10 homes are either delinquent or in foreclosure. The differences between a short sale and a foreclosure will greatly affect your future.
A foreclosure takes a minimum of a year to complete. After approximately 6 months of delinquency, the home will go to a sherriffs sale which the rights of the home will be taken from the owner. After the sherriffs sale, the previous homeowner has a 6 month right of recission in which they have an opportunity to buy back the property for what is owed. During the recission period a homeowner can still live in the property. The amount owed will be increased because of attorneys fees and late fees.
A short sale is selling the property for less than is owed on the property.
While the 1st mortgage is the primary lean holder, any second mortgage or home equity line of credit is a personal loan secured by your home. First and second mortgages respond differently to a short sale regardless of which company is holding the second mortgage. Most financial institutions have different departments that hold first and second mortgages and the departments act as seperate financial institutions during this process.
If a short sale is approved, the first mortgage will write off any amount over the selling amount as uncollectable. The second mortgage treats it completely different and will charge the delinquent amount to the debtor.
Now that we have a brief understanding of short sales and foreclosures, let's discuss how it affects you.
Foreclosure:
Homeowner is ineligible for a Fanie Mae backed mortgage for 5 years
An investor is ineligible for a Fanie Mae backed mortgage for 7 years
Your interest rate will be increased for most other mortgages if they will even accept your application because you have to disclose a foreclosure
Your Credit score will be decreased from 250 to over 300 points and your credit will be affected for more than 3 years
A foreclosure will remain as a public record on your credit history for a minimun of 10 years.
Your security clearance may be revoked if you need it for employment
Short Sale:
A homeowner will be able to get a Fanie Mae backed mortgage after 2 years
An investor will be able to get a Fanie Mae backed mortgage after 2 years
There is no declarations to other mortgage companies about a short sale
Your credit will decline only for the late payments and as little as 50 points and may only affect your credit for 12 - 18 months
Your loan is most often reported as paid in full on your credit history therefore, having no affect on your credit history
A short sale by itself does not change most security clearances.
If you are considering a short sale, your Realtor is essential to make sure the process is negotiated correctly. The financial institutions are understaffed and don't make the short sale process easy.
Feel free to call with any questions or if you want to discuss a short sale in further detail with an experienced short sale Realtor.
Jeremy Flicek
Experienced Short Sale Real Estate Agent
Minnesota Real Estate Network
RES Realty
jeremy@jfhomes.com
612-868-7202
The source for informaiton was from Distressed Property Institute
