Short Sale vs Foreclosure

What is Short Sale? Is short Sale better than Foreclosure?

Short Sale is a transaction where mortgaged owed to bank is more than the sales price!

To Homeowners who is worried about if they should apply for short sale or should they just leave the property and go.. Please do not make this mistake. Talk to your bank and try to understand what options could be out there for you. Do not get discouraged by one phone call. Call them over and over.

In this section of my blog, I will explain you my past 3 years of experience with Short Sales and Foreclosures.

Here are the main differences between Short Sale & Foreclosure.

AVOID FORECLOSURE Foreclosure VS Short Sale You Need To Know The Difference

Issue Foreclosure Short Sale Future Fannie Mae Loan - Primary Residence A homeowner who loses a home to Foreclosure is ineligible for a Fannie Mae backed mortgage for a period of 5 years. A homeowner who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed mortgage only after 2 years. Future Fannie Mae Loan - Non Primary An Investor who allows a property to go to Foreclosure is ineligible for a Fannie Mae backed investment mortgage for a period of 7 years. An investor who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed investment mortgage after only 2 years. Credit Score Score may be lowered anywhere from 250 to over 300 points. Typically will affect score for over 3 years. Foreclosure will remain as a public record on a person’s credit history for 10 years or more. Only late payments on mortgage will show and after sale mortgage will be reported as paid or negotiated. This will lower the score as little as 50 points if all other payments are being made. A short sale’s affect can be a brief as 12 to 18 months. Security Clearances Foreclosure is the most challenging issue against a security clearance outside of a conviction of a serious misdemeanor or felony. A Short Sale on its own does not challenge most security clearances. Officers in the military may be adversely affected by a short sale. Current Employment Employers have the right and are actively checking the credit regularly of all employees who are in sensitive positions. A foreclosure in many cases is ground for immediate reassignment or termination. A short sale is not reported as such on a credit report and is therefore not a challenge to employment. Deficiency Judgment In 100% of foreclosures (except in those states where there is no deficiency) the bank has the right to pursue a deficiency judgment. In some successful short sales it is possible to convince the lender to give up the right to pursue a deficiency judgment against the homeowner. Deficiency Judgment (amount) In a foreclosure the home will have to go through an REO process if it does not sell at auction. In most cases this will result in a lower sales price and longer time to sale in a declining market. This will result in a higher possible deficiency judgment. In a properly managed short sale the home is sold at a price that should be closer to fair market value and in almost all cases will be better than an REO sale resulting in a lower deficiency.

Are you a payment - or more - behind? Have you received a Notice Of Default? You May qualify for a Short Sale! Time is Running Out! ACT NOW! I CAN HELP! Alasgar Farhadov-703-989-3344 or ali@solutionsrg.com * Please Note: We are not attorneys nor are we credit counselors. The information that we are presenting here is general information and should not be confused with legal advice. You MUST seek advice from an Attorney or CPA regarding your legal rights and tax implications for a Short Sale, a Deed In Lieu Of Foreclosure, Bankruptcy or a Foreclosure.

Here is a Sample Short Sale Approval Letter from Bank of America.

If I have done Short Sale-How Long Do I have to wait in order to be able to Purchase again!

Preforeclosure Sales
· A preforeclosure sale involves the sale of the property by the borrower to a third party for less than the amount owed to satisfy the delinquent mortgage, as agreed to by lender.
· On a TCS credit report:
· The Narrative Codes will indicate 158 (Closed or Paid Account/Zero Balance) and 098 (Settlement Accepted on This Account).
· Note: When preforeclosure is begun the status is reported as M-8 at that time; should the loan be redeemed it is not uncommon for the M-8 to remain.
· Conventional
· Effective for applications dated on or after August 1, 2008 but before November 5, 2008:
· 2-years · elapsed time after completion of preforeclosure sale and re-established credit after completion of preforeclosure sale.
· Effective for applications, locks, re-locks, and extensions on or after November 5, 2008:
· 4-years · elapsed time after completion of preforeclosure sale and re-established credit after completion of preforeclosure sale.
· Extenuating circumstances: 2-years · elapsed time after completion of preforeclosure sale and re-established credit after completion of preforeclosure sale if due to · extenuating circumstances.
· FHA
· 3-years since completion of pre-foreclosure and re-established credit after completion of pre-foreclosure sale or borrower has choose not to incur new credit obligations.
· Extenuating circumstances: Less than 3-years acceptable if primary residence and if due to · extenuating circumstances and re-established credit after completion of pre-foreclosure sale or borrower has chosen not to incur new credit obligations.
· Borrower must have clear CAIVRS # regardless of pre-foreclosure
· VA:
· The Department of Veteran's Affairs does not consider a Short Sale a preforeclosure. See · Short Sale/Short Payoff (Preforeclosure Sales) (7-707) for additional information.
· See also · Short Sale/Short Payoff (Preforeclosure Sales) (7-707)

Foreclosure

· Conventional:
· Applications dated prior to June 1, 2008 (must close on or before September 19, 2008):
· 4-years · elapsed time after completion of foreclosure and re-established credit after completion of foreclosure.
· Extenuating circumstances: 2-years · elapsed time after completion of foreclosure and re-established credit after completion if resulted from · extenuating circumstances.
· Applications dated on or after June 1, 2008: (Amended for applications dated on or after August 1, 2008)
· Purchase - Primary Residence
AND
Rate/Term Refinance - Primary Residence, Second Home, Investment Property
· 5-years · elapsed time after completion of foreclosure and re-established credit after completion of foreclosure.
· After 5-years up to 7-years following completion date:
· Purchase requires:
· Down payment equal to the greater of 10% or as per the loan product description, and
· Minimum credit score of 680.
· Extenuating circumstances: 3-years · elapsed time after completion of foreclosure and re-established credit after completion if resulted from · extenuating circumstances.
· Extenuating circumstances: After 3-years up to 7-years following completion date:
· Purchase requires down payment equal to the greater of 10% or as per the loan product description.
· Purchase - Second Home, Investment Property
AND
Cash Out Refinance - Primary Residence, Second Home, Investment Property
· 7-years · elapsed time after completion of foreclosure and re-established credit after completion of foreclosure.
· Extenuating circumstances not considered.
· If AUS is utilized, refer to findings.
· FHA:
· 3-years since since completion of foreclosure and re-established credit or borrower has chosen not to incur new credit obligations.
· Extenuating circumstances: Less than 3-years acceptable if primary residence and if due to
· extenuating circumstances and re-established credit or borrower has chosen not to incur new credit obligations.

Extenuating Circumstances
Extenuating circumstances are nonrecurring events that are beyond the applicant’s control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations.
Extenuating circumstances cannot be solely defined by the event itself; all circumstances must be taken into consideration.


· Borrower must have clear CAIVRS # regardless of foreclosure
· VA:
· 2-years since completion and re-established credit.
· Extenuating circumstances: 1 to 2-years since completion and re-established credit with satisfactory pay history if due to
· Borrower must have clear CAIVRS # regardless of foreclosure

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What Happens to the difference owed?

In Uncle Sam's language we call it Forgiven Debt. Whenever a financial institution forgives a Debt, it has to inform Uncle Sam(IRS) in the form of 1099C(cancellation of Debt) about the loss. Since Uncle Sam never looses, it has to be shown as an Income to somebody. ..I am sure you have guessed by now that you are the Lucky one...The Difference that bank forgave you, will be reported to IRS as an Income under your SSN in the form of 1099C. But wait there is a solutions to this..According to Debt forgiveness act of 2007, you might be forgiven by uncle Sam as well...Talk to your CPA. Make sure you get that 1099C from your bank and file it on your tax return, as long as the property was your Principal Residency you should be fine..

Refer to this link for more detailed info..

http://www.irs.gov/individuals/article/0,,id=179414,00.html

New Short Sale Rules:

Here are the new short sales guidelines that are going to go into effect on April 5^th, 2010. Not all banks are participating in the program so check with your lender to see if you qualify.

New Short Sale Rules

• Sellers must be unqualified for a loan modification under the Home Affordable Mortgage Program or be unable to afford the modification.
• The bank will set an acceptable value of the home upfront, based on an appraisal or broker’s price opinion.
• Lenders must approve or deny a purchase offer within 10 days of it being submitted.
• Once the bank approves a home for short sale, sellers may stop paying all related mortgage payments, and unpaid mortgage debt will be forgiven.
• These mortgage payments will not be shown as late on credit reports.
• At closing, sellers are entitled to as much as $1,500 from the government to cover relocation expenses.