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Replies (14)
- Melinda Johnson, "Melinda Johnson"
- Contributions:110
I agree. Additionally, foreclosure may leave you more exposed if you have an equity line. These types of loans are designed to "detach" themselves from the property after foreclosure and contine to exist as a personal liablity/debt. Although in CA you can often walk away from your first loan after foreclosure, you may not be able to walk away from your equity line. This is a shock to many homeowners who think that all loans on the property go away after foreclosure. In a short sale the first lender will generally allow some amount of the proceeds to be contributed toward the 2nd/equity line lender debt. This at a minimum reduces the debt. They will also either agree to release all the debt and if not, they often times settle for a fraction of what is owed--both options which may not exist after foreclosure. Its much better to deal with these items in a short sale. If a home owner mails in the keys, he or she may find some unexpected nasty debt collectors coming after them when they thought they had walked away from the loans.
- shasta_steve
- Contributions:448
I cringe when I read on here agents giving advice on short sales and foreclosures. Remember they were the same ones who told you it was a good time to buy in 2004-07 or you need to buy now or forever lose your chance. Remember real estate will always go up.
They are the very last ones you should talk to, or take advice from, if facing a foreclosure. They push short sales because they make money off them the same way they made money selling you the house. Now for some short sales can be a good idea but if you do your homework you will find many who did them wish they would have just did the foreclosure route instead. Funny they never mention, what for many is the best option, and that is a loan modification but then again there is no fianancial interest to do so. Many banks are drastically slashing interest rates and extending loan terms.
Now every state is different. I see that the first agent is from Virginia which I believe is a recourse state. In a recourse state the bank has the right to pursue you for money owed even if the loan was purchase money only. Banks will often agree to a short sale but will usually not realease the debt. They will usually want you to sign a promisory note or reserve the right to pursue you at a later date. The second agent is from California and they are non-recouse. In a foreclosure they can not usually pursue you for a purchase money loan unless you refinanced the mortgage. Even if you did refi the mortgage they almost never actually do pursue the buyer because they would have to do a judicial foreclosure, something they almost never do. In California banks will sometimes try and slip language into the short sale agreement that makes the seller liable for a portion of the loss, even if they would not have been able to collect in a foreclosure.
In the end there are lots of things to think about. Don't believe the agents scare tactics credit scores and how soon you can buy a new house. Often times they are simply not true. Get educated and talk to a good real estate attorney. Every state is different and every loan is different. For many a short sale may be a good idea but for some simply staying in the house, saving money until they kick you out is the best option.
They are the very last ones you should talk to, or take advice from, if facing a foreclosure. They push short sales because they make money off them the same way they made money selling you the house. Now for some short sales can be a good idea but if you do your homework you will find many who did them wish they would have just did the foreclosure route instead. Funny they never mention, what for many is the best option, and that is a loan modification but then again there is no fianancial interest to do so. Many banks are drastically slashing interest rates and extending loan terms.
Now every state is different. I see that the first agent is from Virginia which I believe is a recourse state. In a recourse state the bank has the right to pursue you for money owed even if the loan was purchase money only. Banks will often agree to a short sale but will usually not realease the debt. They will usually want you to sign a promisory note or reserve the right to pursue you at a later date. The second agent is from California and they are non-recouse. In a foreclosure they can not usually pursue you for a purchase money loan unless you refinanced the mortgage. Even if you did refi the mortgage they almost never actually do pursue the buyer because they would have to do a judicial foreclosure, something they almost never do. In California banks will sometimes try and slip language into the short sale agreement that makes the seller liable for a portion of the loss, even if they would not have been able to collect in a foreclosure.
In the end there are lots of things to think about. Don't believe the agents scare tactics credit scores and how soon you can buy a new house. Often times they are simply not true. Get educated and talk to a good real estate attorney. Every state is different and every loan is different. For many a short sale may be a good idea but for some simply staying in the house, saving money until they kick you out is the best option.
- sunnyview
- Contributions:25121
Short sale can be a good option, but so can foreclosure. It really depends on your state laws about deficiency judgment and on your own personal situation. Research and then make the decision. Sometimes letting go can be the best option for the long haul even though you do take a bigger credit hit.
- Vivianne Rutkowski, "VivianneRutkowski"
- Contributions:923
There is no doubt that, in general, short sale has less negative impact on credit rates than foreclosure. One can purchase a home in less than 2 years after the short sale, while it takes 5-7 years after the foreclosure. Also, foreclosure (and bankruptcy) must be reported on all the applications, whenever asked.
Of course, every homeowner's situation is different - a knowledgeable real attorney should be contacted to access the financial and legal situation..
Short sales are a privilege, not the right - short sales must be approved by the lender. To qualify the seller must be able to prove a genuine financial hardship and necessity to sell due to outside reasons.
Loan modifications are best IF the homeowner does NOT need to sell, although caution is in order. Sometimes lenders change the terms of the loan from 30 years to 45 years, which makes the loans very costly to the borrowers. Also, often lenders "lower" the monthly payment by removing the tax payment and instead making the borrower to pay the real property taxes - needless to say, in reality, such approach increases the monthly payments to the borrower. Most lenders never reduce the principal, although some reduce the interest rate.
Summary: Homeowners should ALWAYS make an attempt to modify the loan or contact the lender to approve the short sale BEFORE they decide to foreclose. Short sale is better for the seller and often less costly for the lenders.
Of course, every homeowner's situation is different - a knowledgeable real attorney should be contacted to access the financial and legal situation..
Short sales are a privilege, not the right - short sales must be approved by the lender. To qualify the seller must be able to prove a genuine financial hardship and necessity to sell due to outside reasons.
Loan modifications are best IF the homeowner does NOT need to sell, although caution is in order. Sometimes lenders change the terms of the loan from 30 years to 45 years, which makes the loans very costly to the borrowers. Also, often lenders "lower" the monthly payment by removing the tax payment and instead making the borrower to pay the real property taxes - needless to say, in reality, such approach increases the monthly payments to the borrower. Most lenders never reduce the principal, although some reduce the interest rate.
Summary: Homeowners should ALWAYS make an attempt to modify the loan or contact the lender to approve the short sale BEFORE they decide to foreclose. Short sale is better for the seller and often less costly for the lenders.
- barbr2
- Contributions:3
Why can't I just sell? and pay of what I owe? Barb
- Vivianne Rutkowski, "VivianneRutkowski"
- Contributions:923
Barbr2,
IF you pay off your mortgage out of your own funds, even if you sell your home for LESS than the mortgage amount, then it is a REGULAR sale. It is NOT a short sale.
Short sale is when the mortgage amount exceeds the value of the home and the lender generously agrees to accept less as a pay off of the mortgage - in general, sellers must prove a financial hardship and inability to meet the mortgage obligations to qualify for a short sale.
Short sale is a priviledge, not a right. Is it fair? Not necessarily. Life is not fair :-)
IF you pay off your mortgage out of your own funds, even if you sell your home for LESS than the mortgage amount, then it is a REGULAR sale. It is NOT a short sale.
Short sale is when the mortgage amount exceeds the value of the home and the lender generously agrees to accept less as a pay off of the mortgage - in general, sellers must prove a financial hardship and inability to meet the mortgage obligations to qualify for a short sale.
Short sale is a priviledge, not a right. Is it fair? Not necessarily. Life is not fair :-)
- barbr2
- Contributions:3
Thanks for answering- but I still don't get it- ??-If I sell on my own-then pay them what I owe on the mortgage and 2nd mortgage- I will be free of all of this! And my credit will not suffer. Yes? Thanks, Barb
- Michael Emery, "MikeEmery"
- Contributions:7286
Barb
If you can sell your home without your bank taking a loss (either you sell for what you owe or bring a check to the closing table) your credit score won't be damaged.
It's when you start losing OPM (other peoples money) that your credit takes a ding.
If you can sell your home without your bank taking a loss (either you sell for what you owe or bring a check to the closing table) your credit score won't be damaged.
It's when you start losing OPM (other peoples money) that your credit takes a ding.
- Vivianne Rutkowski, "VivianneRutkowski"
- Contributions:923
Barbr2,
I like to think that your credit rating should IMPROVE because you met your financial obligations :-)
I like to think that your credit rating should IMPROVE because you met your financial obligations :-)
- Jeff Konstant, "jkonstant"
- Contributions:1970
The possibility that you might qualify for another loan in as few as two years if you can sell short vs waiting seven or more if you go through foreclosure is a terrible reason to seek the sort sale route.
The total lack of empathy for people who, may through no fault of their own, are experiencing something so financially and emotionally devastating is sickening. It's like saying,"Oh, it's really bad now, but if you do this now I'll be sure to help you. I'll get paid today and be right here waiting for you in just two years so we can do it all over again."
It's so much easier to offer advice when we are not facing the same problems. It's bad enough that agents have forced sellers and lenders to honor commission levels in difficult times and disgusting that we push the two year solution in order to keep the buyers coming back sooner rather than later.
The total lack of empathy for people who, may through no fault of their own, are experiencing something so financially and emotionally devastating is sickening. It's like saying,"Oh, it's really bad now, but if you do this now I'll be sure to help you. I'll get paid today and be right here waiting for you in just two years so we can do it all over again."
It's so much easier to offer advice when we are not facing the same problems. It's bad enough that agents have forced sellers and lenders to honor commission levels in difficult times and disgusting that we push the two year solution in order to keep the buyers coming back sooner rather than later.
- Tish Thompson, "Tish is my Agent"
- Contributions:37
In response to shasta_steve: informing the public of the possible consequences of foreclosure versus selling short isn't a scare tactic, it's what a good agent does. Before taking a short sale listing, I have the people I work with speak with bankruptcy and real estate attorneys, and I put them in touch with a tax professional.
Your post comes across as if all real estate agents are self-serving and liars. I thought it was comical that you come across as a self-serving attorney.
Additionally, it IS possible for banks to go after a borrower for a deficiency after a foreclosure. A refi is ONE way, but how the original loan paperwork was written up is how many people get stuck. So while a buyer is sitting at the settlement table signing everywhere the settlement attorney tells him to, he better take a few extra minutes to read over the paperwork to make sure he's aware of what he's getting himself into.
- shasta_steve
- Contributions:448
Wow you seem to be a little touchy on this situation. As I said before short sales can be a good option for some but agents are the last person you should talk to about it. Again if you were really trying to help someone out you would have mentioned options like modifications. Remind me again just how many hours of schooling are agents required to take dealing with finance? Actually just how many hours of schooling are you required to have compared to say the barber who cuts my hair? No I am not knocking all agents but the ones that keep saying shortsale, shortsale are doing it to make money.
If someone is in a bad financial situation they should talk to a lawyer or tax professional to see just where they are are at. If they decided that a shortsale may be a good idea then talking to an agent may not be a bad idea. The scare tactics about credit scores and not being able to buy another house are just that. Contrary to what you would have us believe a short sale does not just magically fix everything and if you look often times it is not better on the credit score either. In reading your post you make it seem like you can give better legal advice than an attorney. I also get from your post that a short sale is always better than a foreclosure and that is simply not always true.
If someone is in a bad financial situation they should talk to a lawyer or tax professional to see just where they are are at. If they decided that a shortsale may be a good idea then talking to an agent may not be a bad idea. The scare tactics about credit scores and not being able to buy another house are just that. Contrary to what you would have us believe a short sale does not just magically fix everything and if you look often times it is not better on the credit score either. In reading your post you make it seem like you can give better legal advice than an attorney. I also get from your post that a short sale is always better than a foreclosure and that is simply not always true.
- sunnyview
- Contributions:25121
I do not believe that real estate agents should be giving financial advice or legal advice beyond their training. However, many agents feel comfortable doing just that. Short sale is almost always the best option for agents who buy and sell houses. The owner just needs to make sure that it is the best option for them before they go down that road.
It's true that not all agents lie, but there are a few bad apples in any basket. Throwing all the apples into a pie without looking at them may get you a yucky pie so owners should use common sense and consider the all options based on licensed advice that is not paid by commission. Also if you can't trust your attorney to look out for you when they review documents on your behalf, you have the wrong attorney, but at least unlike an agent you can sue them outright and make a Bar complaint without being forced to endure board after board of agent mediated arbitration.
It's true that not all agents lie, but there are a few bad apples in any basket. Throwing all the apples into a pie without looking at them may get you a yucky pie so owners should use common sense and consider the all options based on licensed advice that is not paid by commission. Also if you can't trust your attorney to look out for you when they review documents on your behalf, you have the wrong attorney, but at least unlike an agent you can sue them outright and make a Bar complaint without being forced to endure board after board of agent mediated arbitration.
- Vivianne Rutkowski, "VivianneRutkowski"
- Contributions:923
WOW!
Speak of spreading misinformation!
The only true fact that the last two posters wrote is that real estate agents are NOT allowed to give LEGAL advice, unless they are licensed to do so.
Agents should ALWAYS refer their clients to a real estate lawyer.
Otherwise:
1) Short sale does have less negative impact on credit scores than foreclosure.
2) NOT all homeowners/sellers qualify for a short sale - must be able to prove financial hardship.
3) Short sale is a privilege, NOT a right - lender/investors must approve short sale
4) Every homeowner's situation is different and should be analyzed individually - there is no "one size fits all" approach
5) Short sales are almost ALWAYS BETTER for the LENDERS - less costly, homes left in a better condition, higher resale price.
Foreclosures are only good for real estate investors who often look for homes vandalized by angry foreclosed homeowners. Those investors do some minor cosmetic improvements and sell at a high price. Fact, not myth.
NOTE: For a legal and tax advice advice always contact experts in those fields.
Speak of spreading misinformation!
The only true fact that the last two posters wrote is that real estate agents are NOT allowed to give LEGAL advice, unless they are licensed to do so.
Agents should ALWAYS refer their clients to a real estate lawyer.
Otherwise:
1) Short sale does have less negative impact on credit scores than foreclosure.
2) NOT all homeowners/sellers qualify for a short sale - must be able to prove financial hardship.
3) Short sale is a privilege, NOT a right - lender/investors must approve short sale
4) Every homeowner's situation is different and should be analyzed individually - there is no "one size fits all" approach
5) Short sales are almost ALWAYS BETTER for the LENDERS - less costly, homes left in a better condition, higher resale price.
Foreclosures are only good for real estate investors who often look for homes vandalized by angry foreclosed homeowners. Those investors do some minor cosmetic improvements and sell at a high price. Fact, not myth.
NOTE: For a legal and tax advice advice always contact experts in those fields.
A Few Reasons Why Short Sales are Better Alternatives to Foreclosure
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- 5.0/5.0
- (4 reviews)
Contributions:171Many homeowners are faced with the need to sell their home but owe more than their house is worth. These people may be tempted to mail the keys into their lender, an activity known in the business as "jingle mail." This is a terrible option. Instead, they should be working toward a short sale. First of all, the bank is much more likely to pursue the homeowner with a deficiency judgment if the bank is forced to foreclose on the property. Banks are more likely to forgive the shortage in a short sale, as long as the home is a primary residence. Secondly, while short sales do sell for an amount that is less than a non-distressed sale, the discount is not as great as with a full foreclosure. The result of this is the deficiency is not as great and it has a less deleterious effect on the home prices in the neighborhood. Third, the overall look of the neighborhood is improved because the owners are still in the house and are taking care of the lawn. There are no boarded up windows and knee-high grass. Finally, short sales generally sell more quickly than a full foreclosure process. As a result, the time that the home is in distress and maintenance is being deferred is shortened. The home will more quickly be turned over to an owner who is financially able to maintain it. This also results in less deterioration to home values. If you know a friend or family member who no longer can afford their mortgage, please encourage them to approach their bank about a short sale. They may be surprised by how receptive the bank is to their request
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