Ann Arbor which is better a Short Sale or a Foreclosure on your credit?
A DECADE OF DAMAGE- ITS YOUR CREDIT, WHICH IS BETTER A SHORT SALE OR A FORECLOSURE?
Homeowners struggling to make their mortgage payments experience a wide range of emotions. This is a horribly stressful time. An unexpected illness, loss of a job, reduction of income, or a divorce are all financially life changing situations which are hardships. Add to that the constant bill collector calls, and having to make difficult decisions of which bills can be paid and when, can make thinking clearly even more difficult.
Compassion does not come easily for lenders attempting to collect on bad debt. The downturn in the housing market, home deflation, and foreclosures at historic high rates mean distressed homeowners are not alone. There are literally millions of them and more coming int he near future.
So which is better a short sale or a foreclosure?
A foreclosure will cause a decade if damage to your credit report. Which for a younger home owners may not be catastrophic but for a mature homeowner could be disastrous. A short sale is an agreement between borrower and lender to settle the debt for less than is owed. It is a negotiation. It will reduce your credit score for 12 to 18 months, but not decimate it.
Frustration leads to irrational acts. So what are the alternatives?
You can "Let the bank have it"
And take the hit on your credit for a decade.
Or
You can consider a Short Sale. A short sale is a negotiation between the borrower and lender in which the lender may agree to accept less than is owed against the property it hold the mortgage lien against.
Consider the consequences. Think long term. A short sale may give you an opportunity to settle the debt sell the home and regroup. There are consequences. A lender can ask you to make a contribution to offset the loss (if your financial documents show you have the ability to do that), they may ask for a deficiency judgment, or they forgive the debt in areas very hard hit with high foreclosure rates. For 12-18 months there will be a drop in your credit score averaging about 50 points. You can be eligible for a loan provided you stay current on your other loan obligations in as little as two to three years.
In A foreclosure, the damage to your credit rating will leave a stain for ten years. The damage to your credit score ranges from 250-300 points typically for three years. Making you ineligable for new loans from most lenders.
Before you just give up, talk to a professional. As a Certified Short Sale Resource Specialist (SRF), and Certified Distressed Property Expert (CDPE) together we can work through your options and look for solutions which will help you the most in achieving your long term goals. Foreclosure hurts. Frustration is understandable. Make informed decisions.
St. Cloud Realtor Allison Stewart,
Real Estate Broker,
Certified Short Sale Foreclosure Resources (SFR)
Certified Distressed Property Expert (CDPE)
St. Cloud Homes & Land,LLC www.floridahouseinfo.com 407-616-9904
Missy Caulk & Team can be reached at 734-926-9797 or email: Missy@MissyCaulk.com
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Good points. Although people may not think they will need to use credit in the future, they may regret not paying attention today to what they will need tomorrow.
Thanks for sharing this info with us today. Short sale is always better than foreclosure hands down when it comes to credit report. However, foreclosure may be better for tax purposes. Need to consult real estate lawyer, CPA and credit restoration professional.
Great re-blog Missy....the only thing I would add is that they need to talk to you early in the process and don't wait until there is a foreclosure date!
If only more people realized their were better alternative to just letting their home go to foreclosure!
I always encourge homeowners in trouble to consider a short sale.
The post is a bit misleading though about the damage caused by a foreclosure. You can get a FHA mortgage in 3 years and an FNMA/FHLMC in 5 years after a foreclosure. There are restrictions, but those are gone in 7 years.
A foreclosure will stay on your credit report typically for only 7 years. It is not a public record item like a bankruptcy, which does stay for 10 years. What's more, a short sale, where the lender keyed it, "Settled for less than full balance" will also stay on your credit report for 7 years.
Good advice for anyone considering short sale vs foreclosure Missy. Thnx for reblogging this.
Missy... Drew beat me to it... I agree, some good points, but some of the information is a tad misleading. For a FHA mortgage, the property had to have been sold for 3 + years, and not from the actual foreclosure date. Secondly, you can certainly get your scores up quickly in a year, even after this happens, with very good planning and advice. I have had people with bankruptcies and foreclosures who had 620+ scores 2 years after it took place..
In any case, just bringing this up.. I think this post is good because it gives you alternatives... but I think it fails because if I didn't know better, this would be a huge scare to me and depression would set in if I was told it would be a decade of death. Again, I am not a true expert in the credit field, but I do know enough about it. Hope all is well and that you have recovered from the wedding. ;o)
Hi Missy,
Thanks for re-bloggin this because I missed it originally. I was going to say that I'd take ANYthing over a decade of damage--I protect my credit as though it were a child of mine! Then reading Jeff's comment--makes you wonder if some of the walkers know something we don't going into it...
Missy - It is certainly good information to consider. I also agree with Drew and Jeff, about sellers who have been foreclosed upon and the time it takes to regroup. For instance, I have heard of instances where foreclosed sellers, have become successful home buyers within a couple years of losing their prior home. It depends on a number of factors. One thing for sure, we are dwelling in extraordinary times, and these times are well documented, and can be written about in any explanation letters when applying for new mortgages. We have seen these explanations go a long way!
Important information.
I have agood feeling about the people I helped with Short Selling.
Good Post
Missy, some employers are now asking on their employment applications if you have ever lost a home to foreclosure. If you sold it via a short sale, you can answer "no". Also, since Michigan is a deficiency state, a borrower who just "walks away" increases his or her potential liability to the bank.
Missy - Agree that short sale would be looked on more kindly, obviously, due to the attempted work-out.