Short Sale vs. Foreclosure

Short Sale vs. Foreclosure

Are you an upside-down homeowner looking for legal help as you navigate today’s complex housing market? At BPE Law, we provide comprehensive support to homeowners who are facing foreclosure or who owe more on their homes than their homes are worth. Our experienced attorneys will guide you through this difficult time and help you make sense of your options.

Options for Upside-Down Homeowners

As a homeowner facing foreclosure or an unrealistic debt burden, it’s important to know that you do have options. At BPE Law, we anticipated how the financial crunch would affect homeowners before many other firms and began offering help tailored to the needs of those homeowners. We now offer the flat fee Consult Program, which provides solid advice to homeowners for a flat, reasonable fee.

Before making a decision about how to deal with a difficult housing situation, it is essential to understand the difference between a foreclosure and a short sale.

What is Foreclosure?

Foreclosure is a process by which a lender or bank repossesses a home because the individuals who borrowed money to purchase the home are unable to pay their mortgage. A foreclosure results in the loss of the home and can result in a substantial deficiency judgment. It is best to avoid foreclosure whenever possible as being foreclosed upon can have detrimental effects on your credit and financial wellbeing.

What is A Short Sale?

During a short sale, an upside-down homeowner sells a home for less than what they owe on an outstanding loan or mortgage. In order to conduct such a sale, the homeowner must have the approval of the lender or bank. The borrower may still be hit with a deficiency judgment after a short sale. However, the amount of such judgments tends to be significantly less than the amount with which homeowners are assessed after foreclosure.

Weighing Your Options

It’s important that homeowners carefully weigh their options before deciding if they will succumb to foreclosure or if they will go through a short sale. At BPE Law, our qualified attorneys will walk you through your options and explain the repercussions of both. If you decide to pursue a short sale, we will assist you with the paperwork to do so and may be able to help with lender negotiations.

The following information applies to most homeowners who go through a foreclosure or short sale. However, it’s important to get legal advice tailored to your particular borrowing situation.

Short Sale vs. Foreclosure: Credit Score and Credit History

It’s important to understand that the option you choose when dealing with your current housing struggle will affect your credit score and your credit history. Review the information below to understand how each of your options will affect you.

  • Short Sale: The effect a short sale has on your credit score depends largely on how it is reported. Most borrowers will see their credit scores decrease by 80 to 100 points. Depending on how it is reported, a short sale may or may not show up on your credit record.
  • Foreclosure: A foreclosure generally results in a loss of anywhere from 200 to 300 points from your credit score. Most foreclosures will stay on your credit record for seven to 10 years.

Short Sale vs. Foreclosure: Fannie Mae Loans

Many homeowners who are struggling with their loans worry about whether or not they’ll be able to buy a home again. Here’s a look at how both of your options can affect future home buying.

  • Short Sale: Three years after your short sale, you will be eligible for a Fannie Mae loan without restrictions.
  • Foreclosure: After a foreclosure, you must wait for five years to be eligible for a Fannie Mae loan with restrictions. You must wait for seven years to be eligible for a Fannie Mae loan without restrictions.

Short Sale vs. Foreclosure: Deficiency Judgments

A deficiency judgment is filed by a lender after a foreclosure or short sale has been completed. This judgment is used to recover money that the lender has lost on the home loan. Remember that the option you choose now can have a substantial effect on the deficiency judgment that your lender files.

  • Short Sale: It is often possible to negotiate with a lender to prevent a deficiency judgment after a short sale. Your BPE Law attorney can assist you with these negotiations.
  • Foreclosure: It is entirely up to the lender to decide whether or not to file for a deficiency judgment after a foreclosure. The borrower has no say in this decision.

If you are interested in learning more about the $300 Consult Program or need advice about your short sale and foreclosure options, please call us today at 916-966-2260.