Part II Foreclosure vs. Short Sale: How will it affect Future Loans?

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Take a look at how you as the homeowner may be affected when it comes to deficiency judgement and future loans:

Deficiency Judgement. Except in a few states where there is no deficiency, in one hundred percent of foreclosures the bank will have the right to pursue a deficiency judgement.  A successful short sale, on the other hand, may make it possible to persuade a lender to give up the right to pursue a deficiency judgement.

Deficiency Judgement (amount). In the case of a foreclosure, the home will need to go through a REO process if it does not first sell at auction.  Consequently, the home will have a lower sales price and typically spend more time in a declining market before the sale; the result of this being a higher possible deficiency judgement.  If a short sale is properly managed, the home would be sold at a price very close to its market value and this is almost always better than a REO sale which will result in a lower deficiency.

Future Fannie Mae Loan—Primary Residence. If a homeowner loses a home to Foreclosure they are ineligible for a Fannie Mae backed mortgage for a period of 5 years, while a short sale successfully negotiated will only make that time 2 years.

Future Fannie Mae Loan—Non Primary Residence. Just as in a primary residence situation, the investor who allows a property to go into foreclosure will be ineligible for a Fannie Mae backed investment mortgage for 7 years.  In a successful short sale, an investor would be eligible for a Fanny Mae backed investment mortgage after 2 years.

Future Loan with Any Mortgage Company. A foreclosure will affect your future rates; this is because on any future 1003 application, you will have to answer ‘yes’ to the question: “Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?”  However, with a short sale there is no question or similar declaration that will affect the outcome of your future rates.

For more information on foreclosures vs. short sales in Wasilla AK contact The Kristan Cole Team today.