Short Sales vs. Foreclosures
March 10th, 2010
Just the other day, someone asked me what the difference is between a short sale and foreclosure. I thought that I should write a brief blog about the difference and some advantages and disadvantages about the two. As usual, please consult your lawyer or lending agency for all the facts pertaining to your situation as New Jersey rules and laws can vary from other states.
Briefly, a short sale is a sale of your home for less money than you owe your lender. This is also known as being “underwater.” However, you can not undertake a short sale without the permission of your bank or mortgage company. Permission to sell is granted based on many factors, such as hardship, and this must be clearly demonstrated to the mortgagee. Prior to this spring, short sales took a long time to complete, but new guidelines require that any offer must be accepted or rejected within 10 days by the banks. Conducting a short sale is much like a regular offering-your home is listed by an agent on MLS, potential buyers come and look at it and offers come in.
The biggest disadvantage is that your credit score will be affected, although not as badly as in a foreclosure. An advantage is that you will be able to purchase another home more quickly, often after 2 years. And, depending on your particular circumstances, the lender may require payback of the shortfall amount.
A foreclosure procedure is caused by an inability to keep up with mortgage payments. In this case, the borrower/homeowner gives up rights to the home through a complicated legal process that varies from state to state, and ultimately, the mortgagee owns the property. At that point they are able to sell it and try to regain whatever losses that occurred.
Dramatic drops in credit scores as a result of foreclosure are the biggest disadvantage. This could remain on your credit report for many years. The ability to buy another house could be severely postponed for many years as well.
Certainly, the best piece of advice for anyone is to consult a lawyer about your options and possible results. If you are in a short sale, a real estate agent experienced in dealing with short sales will be a major help in guiding you and getting all the paperwork done correctly and in a timely manner.
Posted by:
Mary Jane Benedetto
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