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Advantages, Disadvantages to Shortsale Foreclosure
By admin | April 22, 2008
If you are about to lose your home because you’ve been delinquent in paying your mortgage then the process will include one of two actions — a foreclosure or a short sale.
In a foreclosure, the lender takes control of your home and then sells it in a trustee or sheriff’s sale. The money obtained in the sale will most likely be less than you owe but it all goes to the lender. You get nothing. In addition, your credit rating takes a hit. The foreclosure is reported to credit organizations and in some states where there are court foreclosures you may get a judgment against you for the deficiency. The judgment too will be recorded on your credit.
Things can be worse if your home has two mortgages. If the holder of the first mortgage forecloses on the house, the holder of the second mortgage gets nothing. Obviously, they won’t be very happy over this situation and may try to recoup their loss by suing you for breach of contract. Or the lender can get a collection agency to do the suit or can sell the loan for cents on the dollar to recoup some of the loss. The buyer of the loan will then be the one to hound you for some kind of compensation.
By filing bankruptcy you could prevent these problems. But your credit is shot. If the court classifies you under Chapter 13, you may be obligated to make payments over a period of some time. If you are classified under Chapter 7, then you might be able to avoid all of this. But Chapter 7 is very difficult to get.
A short sale, on the other hand, allows you to avoid a foreclosure. Instead, you are obligated to sell your home for the best price possible. This price is most likely below the true value of the home and may also be lower than what you owe the lender. Still, the lender gets a recoup of his loss.
The short sale also can save your credit. The lender will notify the credit organizations to rate you as either “Paid Settlement” or “Paid Satisfactory” and your FICO score will take a hit, but it won’t be all that bad. In short, you end up with fairly good credit. You can also try to convince the lender to notify the credit organizations to rate you “Unrated” or not to report anything at all. In this case, your credit stays the same as it was before all your troubles began.
Obviously, the best of the two alternatives for a homeowner facing this scenario is the short sale. The only thing you really lose is the house and you are in the position of being able to buy another house in the not-to-distant future.
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