Like all of you, I'm a big proponent of short sale over foreclosure, not merely for my livelihood (but that counts) but also because I think it's much more responsible than simply living rent-free until you're kicked out.
That aside, I have always used the additional benefit of a less damaged credit score with a short sale over a foreclosure, but then recently, I had some lenders come speak to my real estate class, and they noted that a short sale is just as detrimental on the credit as a foreclosure. This left me flabbergasted.
I am sure I was told it was much easier to get a loan after a short sale versus a foreclosure. And I understand that how many missed payments DO come in to play when we're discussing credit scores.
With all that said, what are the REAL benefits that all of you are using to help encourage short sales?
I want to make sure I am conveying actual benefits to my prospective clients.
Thank you!
Tamara
**********************************
like buttons
Replies
I believe you will find useful information right here at these 2 links:
1) http://www.santacruzcountyshortsales.com/our_blog/view/294/credit_a...
2) http://iwww.santacruzcountyshortsales.com/our_blog/view/293/how_short_sales_and_mortgage_
xx
Seems pretty obvious over the long term - less long tern damage, quicker recovery of credit worthiness. I can see no reason though to do a short sale if the home owner is going through a bankruptcy any way. Sometimes the best option could be a total bankruptcy - only my opinion as I am no lawyer!
Gary, here in Ohio, which is a judicial state, it is still in the best interest of the homeowner to short sale their home, even if they do file bankruptcy. Since the mortgage company has placed a lien on the property, the only way they can get the property is through a foreclosure and now the homeowner has a foreclosure as well as a bankruptcy on their credit report. That makes for 2 black eyes, when they coiuld have had only one. Also, if the homewowner is in a sensitive security position at work, they could be relocated to a different position due to the foreclosure sale, or worse, fired.
My biggest source of short sale business is bankruptcy attorneys. I have spoken at their monthly luncheon a couple of times and have had appointments with them discussing short sales & HAFA amd now many of them send me business on a consistent since the word has gotten out that I know what I am doing.
Great article I blogged take a look.
Short Sale vs. Foreclosure: A Short Sale Always Wins
Posted by rlegan under For Sellers, General Information, Regional News
by Christopher Reale on October 4, 2011
We are again honored to have Christopher Reale, Director of Short Sale Operations at Lepizzera and Laprocina Title and Escrow Services, as today’s guest blogger. He is an expert on the short sale process and will share his knowledge with us on a regular basis. – The KCM Crew
Today’s ever changing real estate industry has brought upon some very challenging questions from our clients. We as counselors, want to put forth the best, non-emotional advice that we can, in hopes that we can help our clients and their families navigate the rough waters of the short sale process.
The most prevalent question and one that continues to permeate the industry is:
“Why should a seller go through the short sale process rather than letting their house be foreclosed upon?”
While we cannot speak to every client circumstance, we can say one thing with complete conviction. In almost all instances in which a potential seller is contemplating whether they should short sell their house or let it go through the foreclosure process, a short sale is the better option. The following are examples to consider:
Example A- Short Sale
Mr. Smith owns a home in which he has a mortgage balance of $220,000 and a current market value of $150,000. Mr. Smith has elected to short sell his property. His Realtor successfully obtains a buyer who puts forth an offer price of $120,000 (80% current market value according to Realty Trac Foreclosure Report 5/26/2011). After reviewing the buyers offer and the financial hardship information from Mr. Smith, Mr Smith’s bank agrees to accept the short payoff of $120,000 which would leave a deficiency balance of $100,000.
The transaction closes and is final. Mr. Smith then pulls his credit report 30 days after the transaction takes place. On the report he notices that the mortgage trade line states “Mortgage debt was settled for less than full” and the balance on the mortgage is $0. Mr. Smith is now on the road to financial recovery.
Example B- Foreclosure
For the ease of illustration we will use the same value and mortgage debt amounts as in Example A. However, Mr. Smith has elected to forgo the short sale process and let the bank foreclose on the property. The bank holding his mortgage facilitates the proper legal procedures to foreclose on the property, all of which are costly. Mr. Smith is notified and his property foreclosed upon of which is taken back by the bank to sell as an REO.
Six months later, the bank finally sells Mr. Smith’s home only they sell it for $90,000 (60% of current market value according to Realty Trac Foreclosure report dated 5/26/2011). Remember, as a short sale, the home would have sold for $120,000 keeping the deficiency to $100,000. In addition to the deficiency now being $130,000, the bank has elected to add on legal costs of $15,000 and asset preservation costs of another $5000 for a total deficiency liability of $150,000. Mr. Smith pulls his credit report 30 days after being notified that the bank has sold his property and of his liability.
On the report he notices that the mortgage trade line states “Foreclosure” and the balance is $150,000. Because of Mr Smith’s choice to choose foreclosure vs. short sale his road to financial recovery has taken a major detour. He not only has a foreclosure on his credit report but now has a much larger deficiency balance in which the bank, in most cases, will report on his credit report as a balance owed.
The Best Option is Clear
While the financial and credit advantages are clear when choosing a short sale over a foreclosure, other advantages are sometimes overlooked. The most important of all of them is maintaining the seller’s dignity and peace of mind. We have heard too many stories of families having to leave their homes because of a Sheriff’s order or some other type of legal action. The short sale process alleviates this negative social impact. The process puts the control back in the seller’s hands so that they can get back on the road to financial recovery and start providing for their families. In the battle of the two evils, a short sale always wins!!!
Thanks! Great article and links too. I agree whole-heartedly that the dignity thing, AND the responsibility thing (in cases where the sellers could pay or could short sale but opted not to).
Happy Holidays!
Tamara
I found this article very helpful in my discussions with Short Sale Seller's to help in understanding the future impact of a short sale versus foreclosure.
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.
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.
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.
Short Sale Table.doc
-
1
-
2
of 2 Next