Short Sale vs. Deed in Lieu

I have counseled many people on the benefits of a short sale (on their credit and futures) vs. a Deed in Lieu of foreclosure. There are some sources (ie: BK attys, friends, bankers, etc..) telling them that the effect on their credit will be the same with a short sale or DIL (and yikes..even a foreclosure!). I believe this to be untrue with all my heart!.

I have a client right now who I am helping find rentals...Chase bank has offered him $10,000 to do a short sale (he has already filed bk on his debts and the home) and his BK atty is telling him not to do it!! I do not understand the BK atty's reasoning. The only way the bank will get the home back is thru a FC or DIL... another black mark on his credit! I am not gonna argue with him, but just don't get their reasoning.

All of the families I have helped w/ a short sale are doing great, both personally and in their credit and are so thankful they didn't just "let it go"! Does any one else have the same experience or advice in these situtaions? Does anyone have first hand knowledge of how a SS is better than a DIL?? IOr why someone would walk away from $10,000 for a sucessful short sale??

Thanks so much!

Bankrupted debt will usually not show up a credit report anyway so the credit score will be unaffected. More likely is that when he decides to buy a new home, he will need to prove what happened to the old home. He'll get a new home loan much faster with an SS vs a Foreclosure, and the foreclosure will add the time it takes for the home to actually foreclose in addition to the waiting period after. ( Here in CT that may be a few years just for the foreclosure to happen plus another 3-5 years to qualify for a new loan)

I have noticed 90% of the time bankruptcy attorneys will say "just let the home foreclose". Theres no logic in it...I think bankruptcy attorneys are just ill-informed about the consequences of foreclosure on new home loans and the state of mortgage lending in general.

Replies

Minna Reid September 5, 2012 at 2:37am

Bankrupted debt will usually not show up a credit report anyway so the credit score will be unaffected. More likely is that when he decides to buy a new home, he will need to prove what happened to the old home. He'll get a new home loan much faster with an SS vs a Foreclosure, and the foreclosure will add the time it takes for the home to actually foreclose in addition to the waiting period after. ( Here in CT that may be a few years just for the foreclosure to happen plus another 3-5 years to qualify for a new loan)

I have noticed 90% of the time bankruptcy attorneys will say "just let the home foreclose". Theres no logic in it...I think bankruptcy attorneys are just ill-informed about the consequences of foreclosure on new home loans and the state of mortgage lending in general.
Wendy Rulnick September 4, 2012 at 9:38am

Jeanne - Can you gently advise him to get the opinion of another attorney? I just had a seller do a short sale who had a bankruptcy which included the mortgage. Does the attorney think he's being helpful by having the seller stay in the home longer? $10,000 is a big moving incentive. Short sale is better than DIL for future re-borrowing, DIL is an actual question on a standard mortgage app, not short sale. DIL is worse for consumer loan rates (such as auto loans). Security clearances more readily accept short sale over DIL, too. Many non-military positions include security clearances. His credit is probably pretty bad now due to BK, but the $10,000 should push him over.
- Jeanne Dominguez > Wendy Rulnick September 4, 2012 at 11:20am
  
  Thanks Wendy, I have suggested he call and speak to my SS atty's and they can give him advice, as well as his accountant. I am not trying to twist his arm in anyway, just want him to be well informed. He is very excited that his credit scores are in the 700's after a BK. I have tried to explain to him, the only way the bank can gain possession is to FC on him or if he does a DIL. But that both of those options will damage his credit much worse than a SS, and his 700 scores will drop like a brick after a FC. =(
  - Wendy Rulnick > Jeanne Dominguez September 4, 2012 at 11:24am
    
    He doesn't understand what you are saying? I don't get it.

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