Replies to This Discussion

Permalink Reply by Wendy Rulnick on November 30, 2011 at 1:46pm

Tamara - 1. With a foreclosure, borrowers could be liable for deficiency balance, depending on their state laws. If so, they may be subject to wage garnishment from multiple sources, have funds removed from bank accounts, cars repossessed (check  with your state attorneys) 2.  Security clearance is also an issue. Who has a security clearance? Not only military, but civil service, government contractors, police, some firefighters depending on where they serve, and more.  Not being able to obtain a security clearance limits job opportunites. 3.  With foreclosure, seller has to answer "YES" in future consumer loan apps as to whether or not they had a foreclosure. Saying "YES" leads to further analysis of the credit app, and may cause a higher rate. 4. Deed in lieu? That's not always possible, even if there is only one loan.  DIL can also affect security clearance and consumer loans. 5. Self esteem.  Why allow the bank to repossess your property? Do the right thing, and work with the bank to short sale. Most banks prefer that - they don't want the house.  Many are now offering incentives to short sale.

As for credit score drop, yes, FICO says it is similar with short sale and foreclosure, depending on someone's entire credit picture.  But there is more to the big picture than just the credit score.

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Permalink Reply by Tamara Dorris on November 30, 2011 at 6:17pm

HI Wendy,

 

thank you for this. I had forgotten about the security clearance thing, and you added some other information that is really helpful.
While I think in CA they won't come after the deficient, I am not positive...I will have to check.

Appreciate your time...you reminded me why short sales are a good option :-)

Tamara

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Permalink Reply by Cathy Ryan on January 22, 2012 at 4:11pm

Hi Tamara,

In California if a property is foreclosed the lender taking action cannot pursue a deficiency if they foreclose by Notice of Default-Non-Judicial Foreclosure.  If the lender forecloses by Judicial Foreclosure they can get a deficiency judgement on a recourse loan-refied.  Purchase money loans are protected.  If the property is taken back by foreclosure and there is a refied second, the 2nd lender can pursue the property owner for the defiency.  Also, deliquent HOA fees can become a judgement after foreclosure.  As of January 1, 2011 and July 15, 2011, laws went into effect that says, if a lender agrees to a short sale in California, they must agree not to pursue the homeowner for the deficiency, recourse or non-recourse, 1st lien and all junior liens.  However, an agent in my company was doing a short sale with a refied 2nd.  The lender said that because of this law, they wanted full payoff, otherwise they would not release the lien.  This homeowner will have to file bankrutcy and then short sale.  Most of the time the benefits for a short sale are the following.  They can buyer again in 3 years.  They do not lose their security clearances. They deal with the junior liens including HOA's upfront.  Nothing to come back to haunt them.

 

I if you want to discuss this further, call me 951 850-5625.  I am in Murrieta California and I have done alot of short sales.

Cathy

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Permalink Reply by Ramon Fuentes on January 22, 2012 at 1:59pm

Wendy,

That was a great explanation on the credit impact with a short sale vs foreclosure. We can also add the neighborhood and community concerns with a foreclosure when property is vacant and not properly maintained. As a homeowner I would rather have my neighbor short sale than foreclosure. There is more safety uncertainty for the neighborhood with a foreclosure.

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Permalink Reply by Dawn Maloney on December 2, 2011 at 10:09am

Tamara, those lenders may be talking about THEIR institution's policies! All lenders are not the same.

When short-selling a conventional loan (with a few exceptions), a seller can IMMEDIATELY get an FHA loan if they have never been late. They absolutely cannot do that with a foreclosure.

And the idea that the short sale has the same effect on a credit score as a foreclosure is a blatant lie. I have clients who had excellent (800+) credit scores before short sale who only experienced a 50 pt drop after a short sale.

Just because someone is a lender does not make them an expert on short sales/credit score/etc.

Good job asking a basic question!!! ;)

 

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Permalink Reply by Tamara Dorris on December 4, 2011 at 10:53am

Wow Dawn, You just made my day!

These are important points that I am copying down right now.

Like all of us, I need to feel good about the service I am providing, and to not feel and see benefits of a short sale had me questioning myself. I feel so much better now.

Thank you and Happy Holidays!

Tamara

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Permalink Reply by Jim West on December 4, 2011 at 10:37am

This chart may help you when you have discussions with future clients/sellers. Since you are in Californa, it is indeed true that the lender cannot go after the homeowner for the deficiency, even the 2nd. However, it does make it more difficult to get a 2nd approved since they cannot potentially (and I say this because the homeowner typically does not have any funds to go after) get the deficiency.

Attachments:

• Short Sale Table.doc, 35 KB

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Permalink Reply by Tamara Dorris on December 4, 2011 at 10:55am

Thank you Jim and I will review this chart now.

If the second can't get the money anyway, what would be the benefit of not approving the sale? Do they get more than the typical 3K if they write it off, or if it's insured?

I get where I am afraid to even take listings with two loans because the seconds can be real deal breakers.

Appreciate your time!
Happy Holidays!

Tamara

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Permalink Reply by Susan Krancer on January 19, 2012 at 1:01pm

Jim,

Thanks very much for this table.  It does put the differences into perspective.  Are you the author?  I would like to use it, but put a line at the bottom recognizing you as the author.

Susan

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Permalink Reply by SE Davis on December 4, 2011 at 11:36am

Tamara;

I have been alerted in the last 3 weeks by 2 previous closed short sale clients that they both have been approved for a conventional mortgage to buy a new home.

Case-1: Short Sale Closed 12 months ago. Client acquired high paying new employment ($100K+), accumulated cash to put a 20% down payment and his credit scores had recovered to over 700 by aggressively paying down balances of other debt. This approval was with a local portfolio deposit bank lender. 

Case-2" Short Sale closed 15 months ago. Client is buying a HUD property advertised by his credit union (previous portfolio) that Borrower had several loans the last 10 years with that credit union and never been late. As you may know HUD properties can be bought for $100 down for perfect buyers. This client leveraged the lenders risk filter with a 25% down payment offer and they approved.

Remember CASH IS STILL KING and can be used to substantially offset extra underwriting risk layers. 

In my opinion avoiding foreclosure is worth MEGA BUCKS to everyone and decreases recovery time to buy another home by years and years. Evidence is now coming in proving that.

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Permalink Reply by Gidget Janz on December 4, 2011 at 11:42am

Tamara,

I am an agent in California, but on the flip side I had to sell my own house to short sale in December of 2007, it was the hardest decision I had ever made. It was a hard bumpy run earlier this year when my husband and I wanted to look for a house again. After talking to several lenders we finally found someone that would give us a loan. We found a house in early September and I had decided to ask for a 45 day escrow. I am sooo glad that I did, because as we went through the process it got harder and harder for them to finally get all the loan info in place. We even closed later than that because they required many more documents than we had orginally been prepared for.

It was a very hard and almost embarassing process, as the underwriter asked for the moon, including all documents that we had for the short sale. It had been a while since we had done it and we had already started packing. So some of the stuff was a bit harder to find. So my advice to anyone that has done a short sale in the past: KEEP IT ALL if you ever want a loan again. They asked for everything including a letter of explaination as to what happened, why and so forth. So prepare anyone that you are going to work with that has already done a short sale in the past, so that they may be ready and make sure to ask for a longer escrow time.

As for affecting our credit, it did, we went from high 700's to mid 600's. We had a first and a second, the advantage we had is that they where owned by the same company. But I would tell eveyrone that avoiding foreclosure is the way to go. If we had foreclosed, we would still be renting. Short sale is the way to go if you want to own again. We even where able to do an FHA loan.

But the moral to the story is that it can be done..it takes a bit of waiting and checking along the way, but ownership can be a dream again. I am a light at the end of the tunnel for many of my clients, and it feels good to tell them that YES, they can be owners again.

Hope this helps.

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Permalink Reply by Mary Ellen Holleran on December 4, 2011 at 7:45pm

Thank you for sharing this story. I appreciate the first hand information that can help with our clients going through the same thing. Happy Holiday's!!

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