Florida Loan Modifications Attorney
A short sale is actually a pre-foreclosure process that allows the homeowner to sell the property with the bank's approval, for less than what is owed to the bank. After a short sale, depending on the financial situation of the owner, and their policies, the bank will either seek a judgment against the owner for the balance, or not. If they do not pursue a judgment, the homeowner will still have to face the IRS, who views the forgiven mortgage balance as phantom income.
So, if someone, either the bank, or the IRS is going to come after the balance, or the taxes, why would anyone want to do a short sale? Why not just walk away and let the bank foreclose? Because in most states, the bank has the same rights - they can still seek a judgment against the homeowner after foreclosure.
Here are some other considerations that figure into this decision:
- With a foreclosure, your credit score may be lowered by 250 to 300 points. Typically they affect your score for over 3 years. In a short sale, the credit score is lowered by 50 points and the mortgage will be reported as paid or negotiated, while affecting your score for 12 to 18 months.
- A foreclosure remains on the credit history for 10 years or more. A short sale is not reported on a credit history. It is usually reported as "settled for less than the full amount".
- A foreclosure in many cases is grounds for immediate reassignment or termination. A short sale is not a challenge to employment.
- A foreclosure is a serious challenge to a security clearance, in almost all cases resulting in a denial or revocation of a security clearance. A short sale is not a challenge to a security clearance.
- A foreclosure takes much longer to process than does a short sale, resulting in a higher amount of the deficiency judgment for additional taxes, maintenance, and interest costs. A short sale will usually have a much smaller judgment associated with it.
- A homeowner who loses a home to foreclosure is ineligible for a Fannie Mae mortgage for five years. A short sale homeowner is eligible for a Fannie Mae backed mortgage after only two years.
I am sure no one wanted to be in a situation to have to make this choice.
