Foreclosure vs Short Sale
If you are looking for the quick answer of which process is most beneficial to the borrower, then look no further, it's short sale by a landslide. The below information substantiates this claim and also discusses initiating foreclosure defense as a means to allow adequate time for a short sale.
Foreclosure and Short Sale Defined
A foreclosure generally happens when a borrower defaults on a loan, essentially being unable to pay the loan amount, and allows the bank to eventually auction the home for the balance of the loan and/or take ownership. A short sale happens when a borrower makes an approved request to their lender allowing them to sell their home for less than the loan amount. This may seem counter-intuitive, but it can actually be more cost effective for the lender to take less than the outstanding loan balance instead of going through the foreclosure process. For example, a short sale does not require the homeowner to be behind on their payments, though this may effect the lender's decision.
Foreclosure vs Short Sale Processes
We have already discussed the foreclosure process and the short sale process in previous articles, but here's a quick recap. A foreclosure comes after a delinquency in payments and subsequent Notice of Default (NOD) from the lender. At this point, the process eventually continues to an auction of the property by the lender. On the other hand, a short sale initiates at the borrower's request and the lender's approval. The lender generally has requirements for the approval, such as the loan balance being more than the property value, but once accepted the borrower controls the sale of the property.
Foreclosure vs Short Sale Credit Effects
Any delinquent payments submitted to the credit reporting agencies should have the same effect regardless of whether the property ultimately goes to foreclosure or short sale; however, working with your lender on a short sale will most often have the least impact on your over-all credit score. The difference between the two can be substantial, with some reports stating up to 130 point advantage for short sales.
Foreclosure vs Short Sale Life Effects
Along with being beneficial to your credit, short sales may also benefit your future employment opportunities, ability to quickly get another home loan, deficiency judgement vulnerability and security clearances. The synopsized explanation is that foreclosure can prevent you from getting a job, a home loan (usually for seven years), security clearance for employment, and leaves you vulnerable for the lender to file for a deficiency judgement, which has become more common in the wake of the mortgage crisis and increased numbers of foreclosures. A proper short sale can decrease or nullify these problems completely, which is a huge benefit for your future. And, of course, provides the comfort of avoiding the foreclosure stigma.
Foreclosure Defense to Short Sale
At Heekin Law, we have a lot of experience in providing foreclosure defense to allow for an appropriate amount of time to complete a short sale. If you find yourself confronting a foreclosure judgement, call us immediately at (904) 998-9733 and schedule a free consultation where we can sit down and discuss your options and how best to proceed. With so many potential benefits on the line, it's in your best interest to let us help.
All articles are written by a member of the Heekin Law staff with the intent of providing current and accurate information, but information changes over time. Please do not use this information in lieu of seeking assistance from an attorney. This article does not constitute an attorney-client relationship.