Short Sale Versus Foreclosure – The Two Beasts Are Not the Same

Published by julia | Filed under Buyer / Seller Tips, Market Trends, Miscellaneous, Real Estate

Okay – there comes a time when a real estate agent is tired is watching television and surfing the Internet only to find the wrong information on short sales and foreclosures. With 50% of all homes in a negative equity situation or living without any equity at all – the foreclosure / short sale battle has begun. It must be noted that both the foreclosure and the short sale will affect the credit score of the homeowner, but it is the years that follow the action that are far different in each case.

The Foreclosure and Fannie Mae

The name Fannie Mae is synonymous with mortgages in the United States. According to new regulations, if a homeowner is forced into foreclosure – Fannie Mae will not back another mortgage for 5 years after the foreclosure. That means the largest mortgage backer in the United States will not be there when the homeowner wants to buy another home.

The Short Sale and Fannie Mae

The short sale outcome is far different than the foreclosure outcome in the eyes of Fannie Mae. If the home owner sells the home in a short sale Fannie Mae will not back another mortgage for that buyer for two years. That’s right – the short sale gives the homeowner back three years in terms of securing another mortgage.

The Deficiency Judgment

Another forgotten form is the deficiency judgment. When a home falls into foreclosure, the bank has the right to file a deficiency judgment for the amount of money still owed the bank. This judgment will not be filed until the home (which has been converted to an REO) is sold. In the mean time – all costs associated with the foreclosure will add up in addition to the fees the bank has racked up. By the time the home sells – the deficiency between the amount owed and the amount received can be huge! That money can be filed in a deficiency judgment and the homeowner will be forced to deal with that judgment before using any type of credit – AT ALL!

Real estate short sales are not the best answer for the homeowner – but they are a better answer than allowing the bank to assume the property in foreclosure. The worse that can happen is the short sale will not go through, but at least the homeowner will have tried to gain back some of what has been lost.