There’s a lot of misinformation about short sales, and at least some of that is coming from the real estate agents who get paid to do them. To be sure, there are some advantages to doing a short sale, but they may not be what you’ve been told, especially if you’ve met with any over-zealous listing agents recently.
- An Approved Short Sale Will Save You From Foreclosure If ever there was an appropriate for the Yogi-ism “It ain’t over till it’s over”, it’s in the short sale. What happens in a short sale will often defy logic. To be sure, the bank may stand to lose more money on a foreclosure than a short sale, but that’s not true of the loan servicer (the company working for the bank to collect the payments, and, in the absence of payments, to foreclose). Some of these fees are triggered by the foreclosure itself, so make sure the bank and the servicer are communicating.Certainly simply having your home on the market alone will not stop the foreclosure process. Your prospects for success improve if the bank accepts your buyer’s offer, but like it or not it’s the banks and their servicers who are in control up to the end. When and if the escrow closes and the deed on the sale is recorded with the county, you’ve successfully escaped foreclosure. Until then the best you can do is try to keep the communication open with the bank, work with a good listing agent, and hope for a successful outcome.
- A Short Sale Will Save Your Credit
Generally, a bank won’t approve a short sale unless you are behind on your payments. Unfortunately, simply being late on your payments already has a serious impact on your credit.Moreover, it doesn’t appear that any difference between short sales and foreclosures on the impact on credit scores is minimal. In 2010, VantageScore Solutions, a company that aggregates data from the three major credit bureaus, did a study of the impact of various foreclosure-related scenarios on consumer credit. The study revealed that a short sale impacts your credit just about as much as a foreclosure. For those borrowers whose credit was clean otherwise, the average short sale cost them 120–130 points. In a foreclosure, if they continued making (presumably reduced) payments, they lost 115–125 points. In a foreclosure where they were behind in their payments, they lost between 130–140 points.
Even though the chances are good that a short sale won’t save your credit, there are a some advantages to doing a short sale over letting the bank walk away with the keys.
- Knowing You Did What You Can To Avoid ForeclosureLet’s face it, most people want to fulfill their obligations if they can, and even though there are plenty of folks in the same boat in this economy, they feel there is a certain stigma attached to losing their home by foreclosure. For this reason, being able to walk away with the feeling that you sold your home instead of having lost it is perhaps one of the main intangible benefits of a short sale.
- Being Able To Buy Another Home Sooner Although your credit is affected more or less equally by a short sale and a foreclosure, there is still an advantage to a short sale in terms of how soon you will be able to buy again – assuming you want to and you can get your credit in order again. According to Fannie Mae guidelines, a buyer is eligible to buy a home within two years after a short sale, but has to wait up to seven years to buy after a foreclosure, though this period may be as short as three years if there are extenuating circumstances such as sickness, severe injury, or job transfer.This is important because Fannie Mae — along with the other major Government Sponsored Enterprise, Freddie Mac – buys some 50% of the loans in the US market from banks. Being able to resell your loan is one of the things lenders look for in a borrower, so as a practical matter, the guidelines in the secondary market make a huge difference in your ability to get financing later on.
Are there good reasons to do a short sale? To be sure, but if you decide to go that route, we believe you should go into it knowing what to expect.