Short-Sale vs. Foreclosure
The state of the housing market is one of the hottest topics being discussed today. Most reports revolve around foreclosure and the percentage of foreclosures on the market. One area that is not always discussed is short-sales. Short-Sales are a relatively new concept that many distressed home owners are turning to as an alternative to foreclosure.
A short-sale is very similar to a foreclosure. The home owner is behind on their payments and does not see any possibility of getting caught up and the home will not sell for what the owner owes on the home. Instead of being forced out by the bank due to foreclosure, the home owner, usually with the help of a realtor, works with their mortgage company to sell the house “short”. This means that the house is worth less than the owner owes on the home. There are positives and negatives to both scenarios and an entire book could be written on the details involved for both. However, I want to lay out the most basic positives and negatives to both scenarios.
1) Owner typically gets to stay in the home longer as they work to sell the home
2) Credit Score hit is less
3) The 3-year waiting period to purchase again starts the day the home is closed on.
1) More paperwork and dealing with a Realtor, home showings, ect
2) Emotional strain of selling the home
3) Bank still has to give final approval on the deal and it can take months to close
1) Owner moves out and puts the bad situation behind them
2) The mortgage company becomes liable for the home once they foreclose
1) 3-year waiting period does not start the day the owner moves out. The waiting period starts when the home is resold and the deed changes hands. This can sometimes take a year or longer.
2) Massive credit score hit
In my opinion, the greatest advantage to a short-sale is that the owner knows the exact day that their 3 year waiting period begins. They can then plan to purchase again in 3 years and hopefully avoid the mistakes / issues that forced the first short-sale. Again, this short blog is by no means a comprehensive guide to short-sales and foreclosures.