The Obama administration is rolling out its Short Sale assistance program in April to combat foreclosure, which is pushing many Americans further in debt. Short sales are becoming a new alternative for homeowners who fear of going into foreclosure status.
Pillar Property Group has been asked by many distressed property owners how short sales work and what are the ramifications of the foreclosure process. We would like a chance to explain.
“Many distressed homeowners do not know what a short sale is and how the process works. These individuals believe foreclosure is inevitable because they are not aware of short sales,” said Eric Skeeter, Pillar Property Group.
A short sale involves telling your lender your financial situation and requests them to accept less than you owe. There are numerous benefits to short sales compared to foreclosure which we would like to outline:
Short sale benefits
•The homeowner is in control of the sale versus the bank.
•The homeowner can be spared the social stigma of foreclosure.
•The homeowner can be current on your payments and still have an effective short sale.
•The homeowner’s sale of their property is handled like any other property sale.
Buying a home again after a short sale
•If your payments have never fallen 30 days late and the lender does not require you pay back the loan you may buy another home immediately.
•FHA loans have 3 year waiting process before you can purchase another home.
•If the homeowner is behind on their mortgage payments and the short sale is granted, sometimes the homeowner can qualify to buy another home within in two years.
Ramifications of foreclosure
•With certain restrictions, the homeowner(s)
•If you are an investor and do not occupy the home, the wait to buy could be 7 years by some lenders.
Costs of short sales on consumer credit scores and reports
•The short sale is not a negative mark on consumer credit because credit bureaus do show the word “short sale” on your credit report.
• Some consumers have reported a negative FICO score from 50 points to 130 points. This is due to the consumer being behind on their payments.
•Lenders report short sales differently and some do no report them to the credit bureaus at all.
Cost of foreclosure on consumer credit score
•FICO scores can drop from 200 to 400 points after a foreclosure has transpired. Generally, this score will remain on your credit report as a public record for 7 years.
• If a prospective employer runs a credit check on you, your job application may be denied if you have a foreclosure on your record.
Deficiency judgments after a short sale
•Judgments are often negotiated between the seller and the short sale bank.
Deficiency judgments after a foreclosure
•Banks are unwilling to negotiate deficiency judgments with the homeowner after a foreclosure.
Can you get consumer loans after a short sale?
•Loan applications do not ask questions about a short sale. The consumer can report they have sold their home.
Can you get consumer loans after a foreclosure?
•If the banks sees you have had a foreclosure, your loan most likely will be denied. If you omit this on your loan application, you may be subject to investigation by the FBI for mortgage fraud.
Taxation after a short sale
•A personal residence is exempt from mortgage debt relief until the end of 2012 on a federal level. Some states will still tax you unless you qualify for the exemption. An investor is not exempt from mortgage debt relief and is subject to certain conditions.
Taxation after a foreclosure
•Same as with the short sale. Except some lenders send out 1099s, even if the owner is exempt.
For more information about the short sale process, please contact Pillar Property Group and one of our representatives.