With Foreclosure rates still rising even with news of the recent news of the bailout where is one to turn for answers. Recently they reported that the numbers of workouts in the last quarter dropped considerably even with rates still rising. My thought on this was banks were laying in wait for the results of this bailout. Now that the bailout relief for banks has been passed there is an aire of relief floating around. Many banks have propelled the short sale processing time literally cutting it in half.
The looming question a homeowner faces when behind on payments is what direction to go. They can opt to do a loan modification or some type of workout to get back on track with their payments. They can simply walk away from the home and allow the bank to Foreclosure or they can try and sell the home before Foreclosure and asking the bank to allow a short sale.
A read an article recently regarding credit scores pertaining to all three options. I am partner in a nationwide short sale company that negotiates for homeowners and investors and also trains investors to perform short sales the right way. Every client asks the same question. How will a short sale effect my credit? The truth of the matter is there is damage to the credit if you do a short sale but not particularly from the short sale itself.
I recently joined a credit company that helps educate homeowners on credit and how to repair their credit legally. There is hope after short sale! With a Foreclosure a judgement is actually placed against the individual and appears in their public records. This judgement can prove to be much higher than the potentially deficiency of a short sale simply because of the continually declining market.
Let me explain. If you conduct a short sale you are left with lates on your credit report. These can be removed rather easily and inexpensively. I know most credit repair companies are expensive but if you check out MyCreditABC you can repair your credit for only $99.95 a year! Now, with a short sale or a loan modification you are going to have to contend with the lates. It is innevitable. The truth is you were already behind. Repairing your credit is a must BUT it is doable and you can get back on your “credit” feet rather quickly.
With a Foreclosure you must contend with additional issues such as the judgement we previously discussed. With the Foreclosure you can count on your judgement being rather on the high side. Certainly expect it to exceed what any deficiency might be simply because there are additional fees. Let’s say you sell your house for $150k in a short sale but owe $200k. That equates to a $50k shortage. Now let’s look at the Foreclosure option. First and foremost and ungodly amount of legal fees will be tacked on. Then consider holding and listing fees that the bank will have to fork out to get the house ready and on the market. Then, because time has passed and REO agents are traditionally more agressive with lower pricing, you home will probably sell for $125k. This means you will have a $75k shortage, legal fees and holding and listing fees pushing your judgement over $100k.
Additionally you will have a judgement placed against you. Many lenders, whether the item has been removed in some places, will not lend you money to purchase another home until 5 years later. This was recently increased from 3 years to 5 by FNMA.
That being said, your best option is to go with a loan modification/workout or with a short sale depending on your situation. Once you have moved forward from this a month or so later it would be wise to look into credit repair that is reliable, informative and inexpensive. If you are in the real estate business and you have clients facing these very same problems you might want to consider joining MyCreditABC and provide this service. MyCreditABC is a great company built on trust and solidity and they offer the clients a GUARANTEE that their program will work. It is also free for affiliates to join. They simply want to help more people the best way they know how…Knowledge!
