Many sellers are wondering whether it would be best to let their properties go into foreclosure or if it would be more practical to go through a short sale.
A short sale is basically letting go of a property for less the amount owed against it. Negotiating with a lender in a short sale is not easy. First, lenders may tap into the seller’s cash assets. Also, not all lenders are willing to negotiate. In these cases, the advice of a lawyer or real estate agent would prove to be helpful. To increase the chances of a negotiation, it would probably be wise for the seller to settle their arrears first.
The selling process is not easy in itself – the seller should be willing to go through experiences of agents holding open houses, appointments with buyers, and possible low offers. With regards to credit, sellers could expect to take a 200-300 point hit.
The effect on credit in a short sale is actually the same as in a foreclosure or a deed-in-lieu of a foreclosure. However, the advantage of the latter is that it allows owners to live in the property for four months to up to a year without rent. Also, both options could be subjected to deficiency judgment.
Before one goes on deciding on having his home repossessed, he should know that the waiting period before purchasing a new home after a foreclosure takes longer than a short sale. Under the new Fannie Mae guidelines, the waiting period after a short sale is only up to 24 months. Contrast this to the seasoning period after a foreclosure which takes 24 to up to 72 months.
In short, the difference between a short sale and a foreclosure could be compared to whether one prefers getting hit by a bus or a train. Owners would do well to reflect on the minute details of its differences before making a decision.
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