Struggling to make burdensome mortgage payment or having to face foreclosure leaves you thinking should I consider a short sale. While foreclosure is an option their are distinct advantages to a short sale.
Should I consider a short sale?
The credit impact will be the same to slightly less with a short sale versus a foreclosure. There are many factors in the short sale that will determine the impact to your credit score, including how the bank reports your short sale the credit agencies and how many missed mortgage payments you have incurred. The impact to your credit should not be the only determination on whether to do the short sale. I have written a more in depth article on the credit impact of short sales. I have seen credit scores be impacted very different from one client to another, but you certainly will not have the “foreclosure” stigma on your credit history.
The Deficiency Balance and Debt Forgiveness
The bigger reason to consider a short sale over foreclosure is the deficiency balance. With a short sale you have some control over the deficiency balance compared to a foreclosure. The deficiency balance is the difference between what you owe on your home versus what is recouped by the bank. In a foreclosure the deficiency balance is automatically established and is easier to pursue a deficiency judgement. In a short sale the deficiency has to be proven.
In a short sale, many times my short sale team is negotiating away the opportunity for the bank to come after the deficiency balance. Many times if you are talking about a first mortgage, the banks will be willing to report the debt as “settled”. Some second loans will do the same or will require a small sum of money or a small personal loan to do so. Once the debt is “settled”, the bank cannot pursue the deficiency judgement.
Another benefit of a short sale is the home is typically sold for close to fair market value where a foreclosure is a liquidation price. If the bank does pursue a deficiency judgement in a short sale your liability will be less.
Other Benefits of a Short Sale
A short sale is less embarrassing overall, no foreclosure notices, no auctions, no surprises. A foreclosure will be publicly announced and recorded versus a short sale. The short sale process offers a little more dignity.
Lastly, a short sale offers some control over the process. If you are working with a bank on a short sale, most likely your home will not be sold out from underneath you and you can stay in your home during the process.
In summary, the short sale is really about offering you control. A short sale gives you some control over the process and the outcome, with a foreclosure you have no opportunity to affect the outcome. For most upside down home owners a short sale is a better choice.
This article, Why should I consider a Short Sale instead of a Foreclosure?, was provided by Kevin Vitali of EXIT Group One Real Estate. I have completed numerous short sales in Essex and Northern Middlesex County Massachusetts. For more information regarding short sales visit Massachusetts Short Sales.