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Answers (9)
- Patrick Schutte, "Prescott REOs"
- Contributions:440
Here's some info from FICO on credit scores, short sales, and foreclosures:
Short Sale, Foreclosure and Your Credit Score
:) PS
Short Sale, Foreclosure and Your Credit Score
:) PS
- Sandy Kaduce, "sandy.kaduce"
- Contributions:34
I agree with Reba's advice that you should first consult with an accountant and an attorney if you are facing this question, because there are tax and legal ramifications to either course of action.
That said, both courses of action will be very detrimental to your credit. The fact that you are in foreclosure means your credit has already taken a hit as soon as the notice of default hits the county records. Since you are already missing payments, then I am not sure there is a whole lot of difference between selling short and deed in lieu...except that we are in a declining market. If you sell short for more than what the bank is able to recover after a foreclosure, the eventual amount of your liability could be less. And is possible that the bank could get a judgement for the difference between what they recover from the foreclosure, and whatever you owed. So while it may seem easier to "just walk away" from the debt on your home by going the deed in lieu route, you could find yourself worse off down the road.
Tough question and there are some good answers here.
That said, both courses of action will be very detrimental to your credit. The fact that you are in foreclosure means your credit has already taken a hit as soon as the notice of default hits the county records. Since you are already missing payments, then I am not sure there is a whole lot of difference between selling short and deed in lieu...except that we are in a declining market. If you sell short for more than what the bank is able to recover after a foreclosure, the eventual amount of your liability could be less. And is possible that the bank could get a judgement for the difference between what they recover from the foreclosure, and whatever you owed. So while it may seem easier to "just walk away" from the debt on your home by going the deed in lieu route, you could find yourself worse off down the road.
Tough question and there are some good answers here.
- Reba Haas, "reba_haas"
- Contributions:620
a more robust answer is at this link since Zillow limits replies to 2000 characters or less.
- Reba Haas, "reba_haas"
- Contributions:620
There is no one answer for everyone. Typically SS has less effect on your credit score than "deed in lieu" or foreclosure but not all SS are successful. For some people it is detrimental to their job to go the route of foreclosure, many companies do credit checks on potential employees. Other people can lose a job because of foreclosure; such as bank employees, jobs that require security clearances, and other financial services. Loss mitigation departments are typically separate from foreclosure and even short sale departments. Each tends to be its own silo within a bank and often are in different states. Welcome to the world of call centers.
An attorney and an accountant should be consulted. In some states there are taxes due on the forgiven debt, even if the IRS has the debt relief act in place for national taxes and extended it through 2012. WA State just had their REET (real estate excise tax) on debt forgiveness removed for this year with the Dept of Revenue (DOR) only just making the change last month. It will likey be reviewed annually.
If the seller has other assets other than the house, it might be harder to get a short sale approved. Bankruptcy for some is an option, but also can cause some issues that are long term like foreclosure. Get some professional assistance, or better yet, take the new CDPE course offered by NAR.
We've been working with many short sales in our area and it is imperative that people understand what is needed to get the bank's attention. When the financial storm hit the banks laid off employees, so staffing is short. Then they got hit again with the refi wave with not enough staff to handle it and now the short sale and foreclosure waves are hitting. Working these kinds of deals requires a lot of patience and due diligence on the part of the seller, buyer, and agents (or others) involved.
An attorney and an accountant should be consulted. In some states there are taxes due on the forgiven debt, even if the IRS has the debt relief act in place for national taxes and extended it through 2012. WA State just had their REET (real estate excise tax) on debt forgiveness removed for this year with the Dept of Revenue (DOR) only just making the change last month. It will likey be reviewed annually.
If the seller has other assets other than the house, it might be harder to get a short sale approved. Bankruptcy for some is an option, but also can cause some issues that are long term like foreclosure. Get some professional assistance, or better yet, take the new CDPE course offered by NAR.
We've been working with many short sales in our area and it is imperative that people understand what is needed to get the bank's attention. When the financial storm hit the banks laid off employees, so staffing is short. Then they got hit again with the refi wave with not enough staff to handle it and now the short sale and foreclosure waves are hitting. Working these kinds of deals requires a lot of patience and due diligence on the part of the seller, buyer, and agents (or others) involved.
- Maria Morton, "MariaMorton"
- Contributions:714
As I understand it, the deed in lieu of foreclosure does not show up on your credit.
- Trish Grima, "ShortSaleMontclair"
- Contributions:24
Homeowners should avoid both foreclosure and deed in lieu by simply putting their home on the market at market value or a little below, and then presenting the lender with any offers that come in. If the offer is less than the current mortgage balance, this will be a "short sale". Banks are taking these offers all day long. The seller's credit will take a hit, but nothing like a foreclosure hit. My group, Piedmont Ave Short Sale, has successfully been doing this in Oakland for a few months now.
- Louis Wolfson, "Louis Wolfson"
- Contributions:173
Both can be the same, but the deed in lieu is typically quicker. Negotiate with the bank that you want forgiveness, if they say now, you can still try the short sale route as many times they are different arms of the bank. Either way, fi they choose not to forgive, you are on the hook. Did you refinance the home and take cash out of it? Or purchase it and are upside down? If its the former then you should pay the piper.
Bankruptcy is another route.
Any way you cut it your credit is sunk.
Bankruptcy is another route.
Any way you cut it your credit is sunk.
- Rita Driver, "Driver Team Realtors"
- Contributions:64
Foreclosure is foreclosure non matter how you view it. Giving up the deed is simply a "give back foreclosure". You still did not really mitigate your loss. The short sale would be your best answer. If you still have time, I would recommend highly that you take that route. I have one under contract that was in the deed in lieu of process and we short sold it and now the bank is forgiving the remainder of the debt and lessens the damage to the sellers credit.
- Lisa Reeves, "Lisa Reeves"
- Contributions:190
I think the more important thing is to get your liability waived by the lender no matter what the option that you choose. But with completed foreclosure there is no way to get your liability waived and with values decreasing it is better to work something out first.
Is deed-in-lieu better than a short sale if you are in foreclosure?
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