Just the Facts, Ma am

Chris Pendleton, a Tuscon Realtor, just posted this note on Short Sales and Foreclosures.   

Though you may have read similar notes on this blog earlier this year or elsewhere, confusion still reigns among the general public...thus it bears repeating!!

Important Facts BEFORE Deciding Between Foreclosure and a Short Sale

The impact and the consequences of a foreclosure, compared to a short sale can be devastating, so investigate the facts before you make this tough decision.  

  

Let's face the facts, it's inevitable that you are going to lose your home...but do you still have options? And which path is the best road to take? A licensed professional realtor, lawyer and tax professional can give you timely advice on the pros and cons of a foreclosure vs. a short sale after considering all of your specific details, but here are some differences you need to consider.

Let's start off with a definition of these two procedures.

A foreclosure is when the mortgage holder, usually a bank or a mortgage company starts a legal proceeding to take over ownership of your home, due to your mortgage payments being behind, usually by 3-6 months or more. The bank will foreclose on the note and mortgage, with the ultimate goal being to get control of the property, so that they can sell it for as much money as possible. Sometimes homeowners will sign a Deed in Lieu of foreclosure which results in the homeowner voluntarily turning the house over to the lender, so that the legal proceeding and related costs associated with it can be avoided.

A short sale, is a process where the homeowner wants to avoid a foreclosure, and also sell their home for less than what is owed on the mortgage. Paperwork must be filled out by the homeowner and given to the mortgage holder to demonstrate the homeowner's financial hardship. The lender researches the homeowner's situation and verifies it. If approved, the lender can opt to forgive the remaining loan balance owed on the property, and other expenses associated with selling the property. 

While both of these options result in you losing your home, the short sale penalty is usually for a shorter period of time, usually 3 to 5 years, than with a foreclosure, which is usually on your credit report for up to 10 years. Consult with a tax specialist, because the IRS may view any debt which you are forgiven in the short sale event, as taxable income to you.

If you are a police officer, in the military, CIA, security, or have aspirations to work in an employment position which requires a security clearance be careful. Being a party to a foreclosure can ruin your chances for employment, and can even result in your termination from a position you are currently holding, citing the foreclosure as grounds, for terminating or revoking your security clearance. A short sale, on the other hand, does not usually have as much negative impact on security clearances, current, or future employment.   You should check with your current employer if you have a security clearance already.

In every state in which the bank has the legal right to claim a deficiency judgment, the bank has the ultimate control to look to you to collect it, if your property sells or is auctioned for less than the amount owed on the mortgage. While Arizona is an Anti-deficiency state - there are still many situations in which the bank can pursue a deficiency.  In a short sale, the lender will most likely waive their right to collect the deficiency from you.

These decisions can be difficult to make by yourself. Consider hiring a licensed, professional realtor, who is experienced in short sales, to help you negotiate with the lender, and locate a buyer for your home.