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Is it sometimes better to foreclose than short-sale?
Someone told me that YES under some circumstances - for example, in foreclosure when the lender forecloses (non-judicial, which is most likely in CA), then there is no later recourse for them....
Where in the short sale - they generally will throw in somewhere they "reserve the right to collect the remaining outstanding balance due..."
Assume the credit-hit is a non-issue. Assume the homeowner is moving and has to leave.
Then WHY in the world would one do a short sale instead of a foreclosure???
In foreclosure, laws prohibit them from placing a deficiency on you....I can find no such laws in the case of short-sales.
I think you better check your info. A foreclosure is a unpleasant legal process for lenders and borrowers, where both sides loose a lot.
In a short sale the lender's cooperation / agreement is essential -- if the lender does not agree to accept the proceeds of the sale as settlement of the debt there is no real incentive for the borrower. If the lender leaves themselves an out that they can attempt to recover the outstanding an amount in the event of fraud or misrepresentation that is VERY different than saying they will hold the seller liable for the full amount of the debt...
But isn't it true that short sales need to be approved by a lender? Such as - they need to see a hardship, etc.....whereas the foreclosure is just done and finalized....???
Is it sometimes better to foreclose than short-sale?
Someone told me that YES under some circumstances - for example, in foreclosure when the lender forecloses (non-judicial, which is most likely in CA), then there is no later recourse for them....
Where in the short sale - they generally will throw in somewhere they "reserve the right to collect the remaining outstanding balance due..."
Assume the credit-hit is a non-issue. Assume the homeowner is moving and has to leave.
Then WHY in the world would one do a short sale instead of a foreclosure???
In foreclosure, laws prohibit them from placing a deficiency on you....I can find no such laws in the case of short-sales.
Let me throw in a few words - the difference between Judicial and Non Judicial is easy to understand. Judicial states require lenders to go through the court to foreclose - which can take up to a year or longer.
Non Judicial states - lenders can sell the property after 120 days.
As for your comment on your credit (ten years ago my credit was in the low 500's, today it's in the high 700's), having a good credit report is something you should strive for. Unless your shopping for a new house or car, you can afford to take a temporary hit on your credit. Over time your credit report can be heeled.
As for doing a short sale vs letting a bank do a forecloser - a short sale will show on your credit report "pay as agreed" or "paid as less than agreed," Your FICA score drops from 50 points to 130 points.
Let me clear up a few definitions you should check into.
A short sale is having another person make an offer on the property, to the lender. Example $200k in owed on a loan, the actual value is $100k. A third party makes and offer to buy the loan.
A short pay is the home owner making an offer the the lender for a principle reduction. This involves a hi/lo offer, after doing two appraisals. You will need an attorney to negotiate for you.
That me suggest another way to help you - look into a Deed in lieu of foreclosure - this is where you give the keys back to the bank, instead of letting the foreclosure taking it's course. This is better because your credit doesn't take that much of a hit (as hard as a forclosure effects it). It is possible to buy another house in the near future.
If you allow a foreclosure to go through, you can expect your FICO score to drop 200 to 400 points. Your credit report will be totaly screwed up!! This will remain as a public record for 10 years. Do not let this happen!!! You will pay for this for many years to come!!!
Ask yourself where / what / who you want to be in ten years and make that your goal. Another piece of advise - look into multiple streams of income - don't just reply on your job.
Double BRAVO!! Lets show some support for the little guys who innocently got caught up in this housing meltdown mess.
By the way, I have 5 condos in Clearwater FL that my wife and I purchased in 2005 as new construction, hoping to flip them within a year for a nice 50k to 100k profit on each! Two of my buddies had done it the year before and I saw how easy it was and was hoping to retire early and finally buy that well deserved Mercedes. Fast forward 4 yrs later. They are now underwater 100k each and costing me 2k a month to keep afloat. Walk away? Foreclose? Or Short Sale? Thanks in advance!!
Homeowner112, I just read your other post about your situation....very sorry to hear about that. Your story PROVES that there are many unique instances where a foreclosure/short sale/deed in lieu are not the "horrible" things some people on these boards have made them out to be.
What sort of loans do you have??? Rented out? Held as??
Quote:
Originally Posted by Beena
Double BRAVO!! Lets show some support for the little guys who innocently got caught up in this housing meltdown mess.
By the way, I have 5 condos in Clearwater FL that my wife and I purchased in 2005 as new construction, hoping to flip them within a year for a nice 50k to 100k profit on each! Two of my buddies had done it the year before and I saw how easy it was and was hoping to retire early and finally buy that well deserved Mercedes. Fast forward 4 yrs later. They are now underwater 100k each and costing me 2k a month to keep afloat. Walk away? Foreclose? Or Short Sale? Thanks in advance!!
I have never seen a non-owner occupied mortgage without some pretty ugly recourse clause... I suppose that is the bad news. The good news is that IRS allows one to treat investment losses signficanly differently than losses on a residence.
So, if you set up a LLC or other legal holding company, have loans that support that status, and can clearly show this was supposed to be business venture the IRS will be your pal.
On the other hand, if you still have a bunch of cash and the lender believes you are personally liable I would start talking to some good lawyers...
Although you are right on certain issues, I need to clarify the deed in lieu option.
1. The deed in lieu, will not always be accepted by the lender. Especially if there are other liens on the property (2nd mortgage or unpaid HOA fees)
2. The lender may require you to have the property listed for a period of time, before they would entertain a deed in lieu.
3. The investor who owns the loan (not the servicer) may not allow for a deed in lieu.
4. A deed in lieu is a voluntary foreclosure, and will impact your scores just the same as a foreclosure, the advantage will be, that if the lender agrees to accept the property, they may be willing to do so for the full amount owed on the debt, relieving you from any future obligation, but that is also not a guarantee.
As a follow up, I went through this with Wells Fargo. They require at least a 90 day attempt at a short sale before they will entertain (yes, entertain) the idea of a Deed in Lieu. Even then, it is not a guarantee. Seems like they are trying to string people along to continue paying through this whole process as opposed to simply letting it go into foreclosure. They are doing a strong sales pitch to try short selling first, then deed in lieu, then ultimately foreclosure. Their liquidation department stated that a deed in lieu has less of an impact than a foreclosure on credit scores. Glad to see Miamia18 has a different take on it. It is hard to know who to believe regarding impacts on credit...
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What sort of loans do you have??? Rented out? Held as??
