Sunday, May 23, 2010

Short Sale or Foreclosure which is worse?

Financial hardship is facing many people in todays market. How did they get in such a tough position? What led to the hardship? Each scenario is different. There are numerous reasons why people are facing the decision to do a short sale on their home or face possible foreclosure: loss of income, bad loans, overspending, poor payment habits, etc.

Let's consider a "short sale" as "pre-foreclosure." Its an option that can prevent someone from facing the embarrassment & negative impact on credit from going through a foreclosure. Can a short sale appear on your credit report? Yes. How bad is that? Depends. Depends upon whether your hardship involved past due payments or a bad loan. There are homeowners who fell behind in making their monthly PITI payment and some folks who had a lender offer them an Adjustable Rate interest-only loan. Interest only loans do major damage because your "principal" on your mortgage is not being paid. The balance owed increases year after year. Ultimately, people with these loans end up "upside down," owing more on their home than its worth; hence the need to do a short sale. By definition a short sale is a sale of real property in which the lender approves the sale of the home for less than the amount due. The lender is being "shorted." Attractive to lenders....not necessarily. In some cases short sales are more desirable to the lender than doing a foreclosure. How beneficial is a short sale to the home owner? Again, it depends. It allows the homeowner to be relieved of the debt and further financial ruin. There's always the possibility of a "deficiency judgment" being filed against the homeowners. Laws vary by state on types of instruments used to secure a mortgage on a home; trust deed or mortgage. This mere fact warrants clarity on what did you sign when you bought your home. Most people don't cover this amount of detail at the settlement. There's just a whole lot of signing. Ask questions. You can never ask enough. For this reason its best to consult with a tax professional and your lender for detailed info on the effects this could have on you. In addition to working with Realtors, your lender, tax professional, a real estate attorney for help with the process, DO YOUR OWN RESEARCH. Learn all you can, so you're equipped to cover your interests as well. This post is one in many to come on this topic. Stay tuned for more on short sales. Thanks for reading my blog & happy house hunting. As always, I'm never too busy for you or your referrals.