SHORT SALE vs. FORECLOSURE
***Besides living with the stigma of having “F” (foreclosure) on your record for the next 10 years or so, here are a few things that you might want to consider:
1.) How soon can I qualify for a new mortgage loan to buy another home?
In a short sale, borrowers must wait at least 2 years before they may qualify for another mortgage loan.
In a foreclosure, borrowers will have to wait a minimum of 5 to 7 years depending on other factors.
Under special circumstances, as such with military personnel relocation, as long as they are not late on their mortgage payments, they may do a short sale and qualify for a new mortgage loan to buy another home right away.
2.) Do Junior Liens (2nd Loan, Et. Al.) go away after foreclosure?
In WA State, the junior liens are extinguished by the foreclosure BUT the debt survives. In other words, junior liens become UN-secured debts after the foreclosure and the creditors have the right to come after you for the entire debt plus court costs, penalties and interest. Junior creditors may sue you after the foreclosure. And if a judgment is recorded against you, it can be attached (as a lien) to any of your properties that you currently own or purchase after the foreclosure.
In a short sale, you have the chance to negotiate a settlement for all of the junior liens; and in most cases, the 1st lien holder may contribute monetarily to help settle the junior liens for a lien-release and full settlement of debts (a payoff for less than the balance owed).
3.) How about Deficiency Judgments for the short-fall?
Deficiency judgment is a monetary judgment against the borrower whose foreclosure sale did not produce sufficient funds to pay off the entire mortgage debt. The lender’s right to come after the borrower for the short fall (deficiency) after a foreclosure depends on the State where the property is located.
In Washington State, the foreclosing lender loses the right for deficiency judgment. – It’s usually the 1st position lienholder who forecloses on a property. But as discussed in Section #2 above, junior debts survive the foreclosure.
4.) How about relocation incentives?
In a short sale, it’s been known that banks may pay out between $2,500.00 - $45,000.00 in relocation assistance to the homeowner depending on their individual qualifications and circumstance. Want to find out if you qualify? CLICK HERE
In a foreclosure, some banks may offer a very small amount of money to the occupants in lieu of evicting them. This amount is miniscule in comparison to what lenders would offer in a short sale. Most banks, however, will offer no relocation incentives and will proceed with an expedited eviction process. The occupants may risk having an eviction judgment against them if they don’t move out in a timely manner.
5.) How does short sale or foreclosure affect my credit rating?
In a short sale, you credit score is lowered by the mortgage late(s). But as long as you keep up with your other obligations, your score generally does not drop more than 105 points. As the mortgage late(s) gets older, your score will gradually increase.
In a foreclosure, your credit score takes a nose dive. It’s been projected to lower your score between 150-200 points depending on other factors.
6.) Can I qualify for a rental after?
Landlords have much respect for prospective tenants who have gone through a short sale. Landlords understand that short sale is the dignified way to settle a debt as opposed to walking away. In most cases, as long as you’ve kept up with your other obligations and your credit score is still above 640, Landlords are more likely to take you as a tenant.
Landlords, however, may not rent out to someone who had a foreclosure. And if they do make an exception, they may raise the monthly rent and require an enormous amount of security deposit along with the customary advance rent payment for first and last months. If you have an eviction judgment against you following the foreclosure, good luck finding a rental!
7.) How does short sale affect my employment?
Depending on the job type, employers may run a credit check prior to hiring and they might re-run credit credit checks throughout the employment period. In this case, having a foreclosure will most likely disqualify you. And since short sale doesn't hurt your credit as badly and provided that you've kept up on your other obligations, your chances of getting disqualified for this very reason would be very slim to none.
Check out the "Short Sale Vs. Foreclosure" Video by clicking here.
Do you qualify for a short sale? Please call (800)780-0226.