Escondido home sellers frequently ask about the benefits of a short sale versus a foreclosure.
Keeping in mind that I am not an attorney or an accountant and that anyone facing foreclosure should always consult with a qualified attorney or accountant, I’d like to review three common concerns facing homeowners in distress as well as their consequences.
What will happen to my credit score?
In a foreclosure, your credit score (FICO score) may be lowered anywhere from 250 to more than 300 points. Typically this will impact your credit for a period of five years.
In a short sale, late payments on your mortgage will show up on your credit report. Once the short sale is complete, your mortgage company will report your mortgage as “paid as agreed,” “settled,” or “paid as negotiated.” This can lower the credit score as little as 50 points and the effects on the credit report may be as brief as one to two years.
Will my lender pursue a deficiency judgment?
In a foreclosure, the bank has the right to pursue a deficiency judgment.
In a short sale, it is possible to convince the lender to give up the right to pursue the deficiency judgment. In the government’s new HAFA program, servicers who participate give up the right to pursue a deficiency judgment.
Will a short sale or a foreclosure impact my future ability to borrow?
In a foreclosure, borrowers may have to disclose on a loan application whether they have a property that has been foreclosed in the last seven years.
In a short sale, there is no similar declaration question on any loan application.
These are just some of the differences between a short sale and a foreclosure. Each situation is unique; so, don’t forget to discuss your situation with an attorney or an accountant.
