Jan 22, 2015

Tip 27-2014: The Short Sale vs. Foreclosure Question

Is it better for the owner of an upside down property to participate in a short sale or to simply walk away with the lender ultimately having to foreclose? The answer in almost all circumstances is "Do a Short Sale."

The advantages of a Short Sale are

  1. A Short Sale has less of a negative effect on the Borrower's credit score than a foreclosure
  2. With a Short Sale, the Borrower should be able to remain in the house until the lender accepts the short sale (instead of moving out and possibly paying rent elsewhere)
  3. More and more lenders are allowing the Seller a relocation allowance with a Short Sale
  4. With a Short Sale, any deficiency can usually be negotiated away as part of the approval. With a foreclosure, the lender may create a deficiency by buying the property for less than the debt owed
  5. Any Second Deed of Trust will not be paid anything with a foreclosure. On the other hand, with a Short Sale, the second lender will receive some money and will probably negotiate a waiver of any deficiency 
Although some information now seems to suggest that short sellers now have to wait four years after a short sale to obtain certain types of mortgages while those who go through a foreclosure only have to wait three, the fact of the matter is that the time frame and requirements for obtaining a loan after a short sale vary depending on the type of loan and the down payment. We all know short sales can be very difficult to complete, they are better than a foreclosure for the specific neighborhood and the general real estate community. The advantages of short sale far outweigh those of a foreclosure.

Contact me at 434-951-0858 or Tucker@TGBLaw.com if you have questions.
Charlottesville Real Estate Attorney
William D. Tucker, III
Tucker Griffin Barnes P.C.
Charlottesville & Lake Monticello

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