Short Sale Consequences

The Consequences of a Short Sale

Short Sales have been a widely used solution to the foreclosure problem. It seems as if every homeowner who is in foreclosure or pre-foreclosure is being bombarded with ads saying “Save your Home” or “Save your credit.” Often times these are people who try to make a dollar by promising things that they cannot provide. As a Realtor who has successfully negotiated short sales, I really think it is about time that people must be aware of the consequences of a short sale.

1. Your Credit

The most common reason people use for a homeowner to sell their home on a short sale is to “save their credit.” That point is not entirely true. Your credit cannot be saved from the damage of the late payments, but a foreclosure can be saved from being reported on your credit report. Many times in a well negotiated short sale, the final report from the Bank will read in one of two ways.

A. Account Satisfied.

2. Account settled for less than full balance.

The first of the two options is much better because it implies to later creditors that the loan was paid in full. The second option is much more widely used. The problem is that the future creditors (especially mortgage lenders) are not stupid and will realize that the final balance of the home loan was settled out and therefore implies a short sale and more importantly that the home was in foreclosure. This will make it hard to finance a home at a good rate for about a year or two, assuming the rest of your credit is good standing.

If the home goes through the entire foreclosure process, a foreclosure and repossession will be posted on your credit report and with the new credit standards in Home Lending, it will be at least 2 years before you can finance a home.

2. Deficiency

Another Factor in negotiating a Short Sale successfully is to eliminate the possibility of Deficiency Judgment. A deficiency judgment is where a bank will sue and successfully get a judgment against the borrower of the mortgage for the difference between what the home was sold for and what was owed. A good Short Sale negotiator will create an agreement between the Lender and the Borrower that will hold the Borrower harmless for the amount between the owed amount and the amount the home is sold for (minus expenses of course).

If a home goes through the entire foreclosure procedure, the Borrower can be held liable and sued for a deficiency judgment by the lender.

If you have any other questions or comments, please feel free to contact me or visit my website at http://www.dansundberg.com

Copyright 2007. Daniel Sundberg, Five Star Real Estate All Rights Reserved.