Many people find it difficult to tell whether they should opt for a foreclosure on their property or a short sale. This decision depends on a number of factors.
While in some cases, a short sale would benefit homeowners, there are circumstances where foreclosure has proven to be the right course of action. However, as Mark Greene, president of Short Sale Operations in North Palm Beach puts it, “I want to be very clear on this, short sales are a better solution than a foreclosure, even when all the options in a situation where you lose your house are not great.”
Generally, a short sale is preferred by most homeowners owing to a number of reasons. Most importantly, you protect your credit score from being affected. In short sale, you know who the homebuyer is and can decide whether or not you want to rent your property to that person. You, and not the bank, control the sale process. Also, the home sale is processed just like any ordinary sale.
Another benefit of short sale is that homeowners can consider purchasing a new home after the sale though a waiting period of 2 to 3 years is generally required between the transition from the old home to the new one. However, it is important that you have never had a history of mortgage payment delays in order to be eligible for making the new home purchase.
In foreclosure, homeowners are allowed to purchase a new home within 5 to 7 years, though certain restrictions apply.
Both short sale and foreclosure affect your credit score. Generally, a short sale can affect your credit score by a drop of anywhere from 50 to 100 points. The major drops only result in situations when the homeowner is unable to make the payments. Foreclosure will witness a credit score drop of 100 to 150 points. The effect of foreclosure is lasting and it will be noted in your credit report for up to 7 years. Foreclosures marked in your credit report may result in denial of employment opportunity if the potential employer runs a credit check on you.
In short sale, the judgments can be negotiated between the short sale bank and the homeowner. In foreclosures, banks are unlikely to negotiate judgments with the seller. Loan applications also do not raise the question of short sale. However, you may have to answer in the loan application if you have had a property foreclosed in the past 7 years. Concealing the real facts may trigger an FBI investigation.
After a short sale, homeowners must vacate the property within 2 to 3 months. However, in the event of a foreclosure, you are required by the bank to instantly vacate the property.
Mortgage debt relief does not apply on personal residence till the fall of 2012 on federal level. However, several states will levy this tax unless certain rules are met to qualify you for the exemption. Investors, for instance, are not exempt from mortgage debt relief.
About the author: Mike Pannell is a Houston Texas real estate agent helping both sellers and buyers complete their real estate transactions. For more blogs & articles about the Texas real estate market & Mike Pannell please visit our Texas Real Estate blog….