When you are presented with the choice of selling your house as a short sale, or surrendering it to the bank as a foreclosure what should you do? Next are some factors to consider before giving up your house to the foreclosure process:
- in a short sale you are in control of your house, this includes the price at which is sold and to whom it is sold.
- being foreclosed can make you feel stigmatized since it is considered incorrect by most of our society.
- when making a short sale your house will be sold as any other house in the market, with no negative connotation.
If you go and sell your house in a short-sale and your payments have been current all along Fannie-Mae guidelines allow you to purchase a home right after, even though finding a lender that is willing to do this can be really hard. You can also qualify for an FHA loan, but these usually take over 3 years. If you have not been current in your payments you might still qualify to buy another home with Fannie-Mae backed mortage, after only two years. When a foreclosure happens the waits becomes longer. with certain restrictions you might be able to buy a home after a 5 year wait, with no restrictions the wait is usually 7 years.
Credit is another factor to consider. Even though your credit report won’t describe the sale as a “short-sale” it can say something like ” paid in full for less than agreed”, and the usual FICO credit point drop ranges from 50 to 130 points. When a foreclosure takes place the negative FICO point score usually ranges from a 200 to 400 point drop. Remember that credit scores stay on your public record for around 7 to 10 years.
In California a deficiency judgment won’t be filed if the house was sold as a short-sale, it was your personal residence, and was financed through purchase money. A bank will negotiate a deficiency judgment with you on a short-sale, but never after a foreclosure. A deficiency judgment may be filed regarding a hard-money loan if the lender forecloses with a judicial foreclosure versus a trustee sale.
Loan applications also go much easier on short-sales, when they don’t ask you any questions regarding your sale, contrary as to when you have a foreclosure on your record, which will be a mandatory question from the bank. The loan most likely will be denied if the answer is “yes”.
When a foreclosure is filed you can petition for a short-sale and stay in your property for2-3 months or longer, while the bank considers your request. After a foreclosure, the bank can ask you to move out immediately unless previous arrangements have been made.
As for taxation, thanks to the mortgage debt relief all personal residences are excluded from federal taxation until the end of 2012 for short sales. Some states will still tax you unless you qualify for exemptions. Only investors are not exempt under the mortgage debt relief. It is the same case for foreclosures only that some lenders will mail a 1099 form, even if the owner is exempt from it.