WHAT IS A FORECLOSURE?
The legal process by which an owner’s right to a property is terminated, usually due to a default (non-payment of mortgage). Typically involves a forced sale of the property at public auction (Sheriffs Sale), with the proceeds being applied to the mortgage debt. There were 2.8 million foreclosures in 2009 and 4-5 million projected for 2010.
WHAT ARE THE EFFECTS OF FORECLOSURE?
- Credit score damaged (300 points)
- Foreclosure on your credit and may always remain
- Future loans reveal foreclosure (higher interest rates)
- Employers run credit checks – could be damaging
- Possible deficiency judgment on remaining balance
- Embarrassment & disturbances of having to find a new home
HOW TO STOP THE FORECLOSURE ON YOUR HOME
- Look for other sources – find monies to pay off late payments and bring current
- Contact the lender – loan modification
REVIEW THE OPTIONS
- Deed in lieu – still shows as a foreclosure on credit
- Re-amortization – late pays extended to end of loan
- Let it go – walk away from home and foreclosure (Not a recommended option)
- Short Sale
WHAT IS A SHORT SALE?
A short sale is an agreement in which the bank agrees to accept a payoff in the loan for less than the balance. Many lenders agree to the short sale because they receive the same or more of the loan balance in comparison to the amount they would gain from selling the property after a foreclosure. When you own your home it is an asset – when the bank owns it it is a liability.
WHAT IS THE DIFFERENCE BETWEEN A SHORT SALE AND A FORECLOSURE?
- Credit score
- Foreclosure – 300 points
- Short sale – as little as 50 points
- Credit History
- Foreclosure – 10 years
- Short sale – Settled in full (No report)
- How long to purchase another home?
- Foreclosure – 3 years after bank sells it
- Short sale – 18-24 months (No wait if house was kept current)
- Deficiency judgments
- Foreclosure – bank can collect difference
- Short sale – they cannot
- Difference owed on a short sale
- Covered to 1 million (Mortgage Forgiveness Debt Relief Act of 2007) – PLEASE CONSULT YOUR ATTORNEY AND/OR ACCOUNTANT!
HOW TO GET STARTED
- Contact your lender and advise then of the situation
- Follow the steps to qualify for a short sale
- Letter of Authorization for REALTOR
- Net sheet
- Proof of income
- Last 2 pay stubs
- Last 2 bank statements
- Hardship Letter – Must state: “I can no longer pay my mortgage payment at [Address]”
