What is a short sale?

A  short sale is a sale of real estate in which the proceeds from the sale fall short of the balance owed on a loan secured by the property sold.  This is achieved through negotiating with lenders, aggressively marketing the property, and pricing it strategically and effectively. 

What are the consequences?  What are the benefits?  What is the difference?!?!

Here is a list of just some of the things to consider.  Foreclosure consequences are highlighted in red, short sale consequences are highlighted in blue.

Future Fannie Mae Loan - Primary Residence

A homeowner who loses a home to foreclosure is ineligible for a Fannie Mae-backed mortgage for a period of 5 years.

A homeowner who successfully negotiates and closes a short sale will be eligible for a Fannie Mae-backed mortgage after only 2 years.

Future Fannie Mae Loan - Non Primary

An investor who allows a property to go to foreclosure is ineligible for a Fannie Mae-backed investment mortgage for a period of 7 years.

An investor who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed investment mortgage after only 2 years.

Future Loan with any Mortgage Company

On any future application, a prospective borrower will have to answer YES to question C in Section VIII of the standard 1003 form that asks "Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?"  This will effect future rates.

There is no similar question or declaration regarding a short sale.

Credit Score

Score may be lowered anywhere from 250 to more than 300 points.  Typically will affect a credit score for over 3 years.

Only late payments on mortgage will show, and after sale, mortgage is normally reported as "paid as agreed", "paid as negotiated", or "settled".  This can lower the score as little as 50 points if all other payments are being made.  A short sale's effect can be as brief as 12 to 18 months.

Credit History

Foreclosure will remain as a public record permanently, and on  a person's credit history for 10 years or more.

A short sale is NOT REPORTED on a credit history.  There is no specific reporting item for "short sale".  The loan is typically reported "paid in full, settled".

 

How long does it take?

Short sales are like a clock ticking backwards, the sooner you start the process the more time you have to successfully complete it. Sometimes I think they should really be called LONG Sales ;-).  It is recommended that you seek advice as soon as you know you are going to fall behind (be it advice from a home foreclosure counselor, an attorney, or an experienced realtor), once you get into the downward spiral of late payment penalties and interest it can be difficult to get out, in fact only 10% of homeowners who miss a payment get back on track.  Once you reach the end of your redemption period, a short sale is no longer possible as the owner's rights are terminated.

Are there other options besides foreclosure and short sale?

Yes, there are many different options available, and it is important that you consider them all and seek legal advice if you have any questions.  As real estate agents, our focus is to setup and complete successful short sales for our clients in distress, as we believe this to be the least damaging and most plausible solution in most cases.

What course of action is the right one?

Every situation is different and every solution is unique.

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