Frequently Asked Questions

Question:  Should I do a Short Sale or let my home go into Foreclosure?

Answer:  Whether you should do a short sale or let the home go to foreclosure depends on several factors. For some homeowners, it is easiest to throw up your hands and let the bank take your home. However, in most cases, it makes much more sense to do a short sale.

Short Sale Benefits

Here are a few benefits for doing a short sale that may not have occurred to you:

• You are in control of the sale, not the bank.
• You may sleep better at night knowing who is buying your home.
• You will spare yourself the social stigma of the "F" word, foreclosure.
• Contrary to popular belief, you can be current on your payments and still complete a short sale.
• Your home sale will be handled like any other home sale.

Buying Again after a Short Sale

If your payments have never fallen behind 30 days late and the lender does not require that you pay back the loan, Fannie Mae and FHA guidelines may allow you to buy another home immediately.

If your payments are in arrears yet a short sale is granted by your lender, you may qualify to buy another home with a Fannie-Mae backed mortgage within two years, regardless of whether the home is your primary residence.

Buying Again after a Foreclosure

With certain restrictions, you may be eligible to buy another home in 5 years if the home was your primary residence. Without restrictions, the wait is 7 years.

If you are an investor and do not occupy the home, the wait to buy with a Fannie Mae insured loan is 7 years.

Affects on Credit after a Short Sale

A short sale is not a derogatory mark on your credit because credit bureaus do not show the word "short sale" on your credit report. All lenders report short sales differently and some do not report them to the credit bureaus at all. It may say "pay as agreed" or "paid as less than agreed," among other categories. Some clients have reported negative FICO score drops from 50 points to 130 points.

The point drop is typically due to being behind on your payments. However, if you keep your payments on time during the short sale process, you will not experience a dramatic drop in your FICO score. Even if you are late on your payments, your credit score will improve over time once you start making all of your payments on time again.

Affects on Credit after a Foreclosure

A number of sources have reported FICO score drops from 200 to 400 points after a foreclosure. Generally the foreclosure will remain on your credit report as a public record for 10 years. Your score will get better over time, but that public record will be constantly dragging your score down for 10 years! If a prospective employer runs a credit check on you, your job application may be denied if you have a foreclosure on your record.

Deficiency Judgments after a Short Sale

Judgments are often negotiated between the seller and the short sale bank. In some cases, such as California, if the home is your personal residence and was financed through purchase money, there is no deficiency judgment.

Deficiency Judgments after a Foreclosure

Banks are unwilling to negotiate deficiency judgments with the homeowner after a foreclosure. In California, for example, according to the California Association of REALTORS, a deficiency judgment may be filed regarding a hard-money loan if the lender forecloses under a judicial foreclosure versus a trustee sale or if the second loan is a hard money loan and the sale takes place as a trustee's sale.

Loan Application Questions after a Short Sale

Loan applications do not ask questions about a short sale. You may report that you sold your home.

Loan Application Questions after a Foreclosure

You are required to answer the question: "Have you ever had a property foreclosed upon or given a deed-in-lieu thereof in the past 7 years." If the bank sees you have had a foreclosure, your loan most likely will be denied. If you lie, you may be subject to investigation by the FBI for mortgage fraud.

Length of Time to Move after a Short Sale

If you've had a foreclosure notice filed, you may be able to postpone that action while the bank considers your short sale. The wait for short sale approval can be from 2 to 3 months, or longer.

Length of Time to Move after a Foreclosure

Unless prior arrangements have been made, the bank may want you to immediately vacate the property and can commence eviction proceedings.

Taxation after a Short Sale

A personal residence is exempt from mortgage debt relief until the end of 2012 on a federal level. Some states will still tax you unless you qualify for an exemption. An investor is not exempt from mortgage debt relief, subject to certain conditions.*

Taxation after a Foreclosure

Same as with a short sale, except some lenders immediately send out 1099s, even if the owner is exempt.*

*Please consult your tax specialist with regards you your particular situation.