Short Sale vs Foreclosure

Surviving A Short Sale

There are several differences between a “short mortgage” sale and a mortgage foreclosure and the effects between the two are substantial for all involved including the borrower or mortgage holder, the bank and a potential real estate agent.

For the borrower, the benefits of a short sale include not having the “foreclosure” designate on a credit report, eliminating the opportunity for the lender to take legal action against the borrower for the difference between the negotiated “accepted” price and the actual cost of the property (with a no recapture allotment) and zero tax implications as long as the short sale is completed and closed before the year-end 2012.  Even if the short sale text is reported to the credit bureaus (which, again, any wording or verbiage can be negotiated), a borrower will not have to wait the industry standard 24 months for another mortgage. The obvious benefit for the lender is they no longer have to absorb the operating cost nor the liability of the property until the property is either auctioned off or becomes an REO (Real Estate Owned) property.  The lender knows the realized settlement net because of the accepted offer.

The benefit to a real estate agent is simple.  Any short sale property MUST be listed with a licensed real estate agent for the transaction to be accepted by a lender.

When there is a short sale, there is a negative impact on an individual’s credit report.  A borrower must be behind on the payments and the foreclosure proceedings must have been initiated.  When this is the case, the credit profile will reflect late or past due payments…but the effect is substantially less than a foreclosure.  What Midas will do is, after the short sale transaction has taken place, is work on getting the past due amount and late payments removed.  After getting the late payments deleted, we continue to work on the profile until the mortgage account reflects in a positive manner, zero due and no derogatory reporting.

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