One of the most asked questions is whether a homeowner should sell their home by short sale or let it go to foreclosure, AKA Trustee Sale. There are a number of factors a home owner should weigh when exploring this decision.
In end we always advise talking with an attorney well versed in short sales, foreclosure and bankruptcy law in your State. A conversation with a CPA may be well advised depending on your financial and income situation.
Which is better? A short sale or a foreclosure?
Short Sale Benefits
Here are a few benefits for doing a short sale that may not have occurred to you:
- New HAFA rules may make a short sale less punitive.
- You may sleep better at night knowing who is buying your home.
- You will spare yourself the social stigma of the "F" word, foreclosure.
- You do not have to be behind on your payments to conduct a short sale, thus your credit may stay in better shape.
- Your home sale will be handled like any other home sale.
- Many experts say a short sale is less damaging to your credit.
Buying A Home After a Short Sale
If your mortgage payments have never been 30+ days late and the lender does not require you pay back the loan, Fannie Mae guidelines may allow you to buy another home immediately. The wait for an FHA loan is 3 years.
The guidelines for doing a short sale under the HAFA program may allow you to buy a home in just a few short years.
If your payments are in arrears yet a short sale is granted by your lender, you may qualify to buy another home with a Fannie-Mae backed mortgage within two years.
Buying A Home After a Foreclosure
Lenders tells us the wait to purchase a home after a foreclosure is between 5 and 7 years depending on various factors. They also feel that with the vast number of foreclosures, banks MAY rethink this policy... time will tell.
Investors may have to wait 7 years after a foreclosure on a non-owner occupied home if the loan is back by FNMA. Again, there is a lot of speculation on what the future policies will be as lenders find the pool of qualified mortgagees falls due to credit problems.
How my Credit is Affected by a Short Sale
As of this writing (July 2010) the effect on your credit after a short sale is widely unknown and dependant on many factors. There is no category on credit reporting for the term short sale. Most experts we've listened to or read suggest the credit hit from a short sale will be considerably less than a foreclosure. Since the rules are not set in stone, you may want to discuss this with a CPA who is well read in the subject.
Credit Scores... Foreclosure
A number of sources have reported FICO score drops from 200 to 400 points after a foreclosure. Generally this credit score will remain on your credit report as a public record for 10 years.
Deficiency Judgments... Short Sale
Judgments are often negotiated between the seller and the short sale bank. In Arizona, the anti deficiency laws have not been tested in the courts for short sales. There are efforts underway to extend the laws to cover short sales, yet they are not in place as of this writing. (July 2010).
We have an article on the site that specifically discusses Arizona Anti Deficiency statutes as they apply to a short sale. Here is a link to the anti deficiency article on Short Sale Phoenix.
Deficiency Judgments After a Foreclosure
Arizona has anti deficiency laws in place that protect most home owners. Your attorney can help determine if you qualify.
We hope this article has been of help to you as you consider your options. If we can be of further help, give us a call or use the form below to contact us.
Gene Urban & Ron Urban
The Urban Team at Realty Executives
602-234-5777
