February 16th, 2010 12:33 PM by Dave Gubler
Benefits Of A Short Sale
Here are some of the more important potential benefits of a short sale. (Keep in mind all of them bear further discussion to determine how they may apply to your specific circumstances):
1. Damage To Your Credit Is Reduced. This point is much debated but the evidence all demonstrates that a short sale has a reduced impact on your immediate score and a reduced impact over time to your credit score. Although your credit score is vitally important your creditworthiness and ability to obtain credit is more than just your credit score. This is an important point! For instance, you will be eligible for Fannie Mae & Freddie Mac home financing after 2 years if you short sale your home. You will not be eligible for Fannie Mae & Freddie Mac financing for a minimum of 5 years if your home is foreclosed on. A difference of 3 years. This has nothing to do with your credit score and everything to do with the way the financial crisis has altered mortgage underwriting guidelines. This example is just one of many that clearly demonstrates how a short sale is better for your credit than a foreclosure.
2. You Pay No Out Of Pocket Expenses. Virtually all short sales are sold "as-is". You won't have to bother spending time and money on home repairs. Your lender pays for all fees, services, and commissions on both sides of the transaction.
3. You Get A Fresh Start. A short sale provides a clean break from your mortgage hardship. Sadly, more than 55% of homeowners that have obtained a loan modification wind up in default again. The scope of loan modifications at present time is such that the relief provided isn't providing a long-term solution for homeowners.
4. You Maintain Your Dignity. Not important to everyone but for some people this is of paramount importance. A short sale allows you to stay in your home during the negotiation process and leave at the close of escrow just like a traditional sale. The foreclosure process involves bank representatives making periodic property inspections and the formal posting of a trustee sale notice right on your home itself. Finally the local Sheriff is contacted to have you forcibly evicted.
5. Your Trustee Sale Date Can Be Delayed. Virtually all lenders will, at this time, delay a foreclosure sale date if a short sale offer is in negotiations.
6. You Reduce Your Tax Obligation. The Mortgage Forgiveness Debt Relief Act of 2007 protects short sale sellers from being taxed on the difference between their loan balance and the short sale price. In a foreclosure you will receive a 1099 for the difference between what the bank eventually sells the home for and the amount you owed.
7. You Will Have An Easier Time Renting. A foreclosure and/or eviction are red flags to potential landlords who may decide not to accept you as a renter or increase the security deposit required. While a short sale is being negotiated you can take your time to select a new place to live and landlords generally apply more lenient requirements on short sellers vs. those who have been foreclosed upon. Landlords are creditors too. It's common sense... they can see that you made every effort to do the right thing with your previous obligation rather than tuck your tail and run leaving the creditor (your mortgage lender) high and dry.
All of these points deserve a more in-depth discussion with regard to your specific circumstances and I invite you to contact us so that we can provide you a complete (and free!) consultation.