Why Should I Short Sale my Home Rather than let the Bank Foreclose?

Lately, I have been on a few short sale appointments where the home sellers feel if they are going to lose their home anyways why bother with a short sale instead of a foreclosure. So I thought it was worth reiterating why a short sale is usually more beneficial to a homeowner than a foreclosure.

There are 2 reasons that a short sale is better than a foreclosure:

Credit Retention- A short sale will typically impact your credit score less than a foreclosure.  There are definitely many factors that can effect how your score will be impacted in a short sale…. unfortunately many times there are other credit issues other than just the mortgage.  In a short sale, the debt is usually reported as settled.  Also, when looking for certain types of credit, even if your score is high, the mere fact that a foreclosure is reported on your credit report will prevent you from receiving certain types of credit.  In a short sale, many institutional loan products will be available to you in as little as two years vs seven years for a foreclosure.
Controlling the deficiency judgment- Whether you do a short sale of a foreclosure, you may have to deal with a deficiency judgment.  In the state of Massachusetts a bank has up to two year to file for the deficiency and up to 20 years to collect. They can garnish wages, attach future assets and so on…. In a short sale, many times the right for the bank to pursue a deficiency judgment negotiated right off the table.  You do not have that option with a foreclosure.  Even if in the short sale the bank retains the right for a deficiency judgment it could be for less than what it would be in a foreclosure.  Don’t forget you have to pay all the costs associated with the bank trying to collect the debt.

With that said, the past several months my short sale team has closed on approx. 15 short sales.  Out of the 15 short sales, 14 of the short sale properties had the deficiency judgment negotiated away.  The bank gave up any future claims with the seller.  1 of the short sales a second mortgage retained the right to pursue a deficiency judgment, while the first gave up that right.  So the deficiency judgment was drastically reduced in this situation.

Don’t give up so easily, what you decide today can impact you for many years to come.

This entry was posted on Sunday, January 30th, 2011 at 7:01 am and is filed under Short Sale. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.