Many of my clients ask me why should I do a short sale vs. a foreclosure. Here are a few answers to those questions.
With a Short Sale you will lose between 125-150 points on your credit score.
With a Foreclosure you will lose 250 points in most cases.
With a Short Sale we have had an 85% success rate to have the banks waive the right to come after you for the difference of the what is owed, and what the bank receives otherwise known as a deficiency judgement.
With a Foreclosure 100% of the time they get a deficiency judgement that in many cases forces the customer into bankruptcy.
With a Short Sale the ability to get a new loan is hindered, but only for 2 years.
With a foreclosure it is going to be very tough to even get a new loan. Right now they say about 5 years minimum.
There are going to be a lot of changes to Fannie Mae or Freddie Mac in the near future as we have already seen. With a lot of people claiming bankruptcy and doing short sales I thought this chart was great information so you can educate your customers on what to expect in the future and the consequences a short sale or foreclosure may have on the ability to obtain a new loan in the future.
Bankruptcy and Foreclosure Policy Changes (applicable to manually underwritten loans only)
In U-Memo 08-29, we detailed changes to our requirements for borrowers with a prior foreclosure in their credit history. With this U-Memo, we are updating these requirements as well as establishing new requirements for bankruptcy and pre- foreclosure sales. We are updating the requirements regarding the time period that must elapse before borrowers can demonstrate that they have re-established their credit history following an occurrence of a bankruptcy or foreclosure. The following table outlines our current and new policies for manually underwritten loans:
|
Action |
Current Requirements |
New Requirements |
|
Bankruptcy (all except chapter 13) |
4 year time period from discharge date |
The 4 year time period is unchanged; however it is now applied from either the discharge or dismissal date of the bankruptcy action. |
|
Chapter 13 Bankruptcy |
2 year time period from discharge date |
The time period for Chapter 13 bankruptcy actions is measured as follows: |
|
Exceptions for extenuating circumstances-All Bankruptcy Actions |
2 year time period from discharge date. No exception to the 2 year time period for Chapter 13 bankruptcy actions. |
The 2 year time period will be measured from the bankruptcy discharge or dismissal date. No exceptions are permitted to the 2 year time period after a Chapter 13 discharge. |
|
Multiple Bankruptcy Filings |
No existing policy |
A 5 year time period date is now required from the most recent dismissal or discharge for borrowers with more than one bankruptcy filing within the past 7 years. |
|
Exceptions for extenuating circumstances-Multiple Bankruptcy Actions |
No existing policy |
A 3 year time period from the most recent discharge or dismissal date is required. |
|
Foreclosure |
We recently updated (in U-08-29) the time period from 4 to 5 years from the date that the foreclosure sale had been completed. |
Additional requirements now apply after 5 years up to 7 years following foreclosure completion date: |
|
Exceptions for Extenuating Circumstances-Foreclosure |
We recently updated (in U-08-29) the time period from 2 to 3 years from the date that the foreclosure sale had been completed. |
Additional requirements now apply after 3 years up to 5 years following foreclosure completion date: |
|
Deed-in-Lieu of Foreclosure |
4 year time period from completion date ( date deed-in-lieu was executed) |
This 4 year time period still applies. Now, the following additional requirements apply after 4 years up to 7 years following completion date: |
|
Exceptions for Extenuating Circumstances- Deed-in-Lieu of Foreclosure |
2 year time period from completion date |
This 2 year time period still applies. Now, the following additional requirements apply after 2 years up to 7 years following completion date: |
|
Time period After Pre-foreclosure Sale |
No Existing Policy |
2 year time period from completion date; no additional requirements. |
David Serle
Vice President/Managing Broker
RE/MAX Services
561-912-3500 Office
561-912-3502 Direct
561-756-3104 Mobile
Hi David;
I do appreciate your post, this is good information for home owners. Happy Holiday!
I have heard that it might even take 7 years to get reestablished for a home loan after a foreclosure.
Thank you for sharing a very informative post with everyone. I got some great tips out of it. Thanks agian and Happy Holidays!
You have some good data there. And, the chart is useful to help explain things to others.
Anthony, James, and Heath thank you for your comments I do very much appreciate them.
Mike it may take more then 5 years, and as much as 7 years, It will depend on the whole credit and income profile.
Thanks again. If we are not doing short sales in this market then we are not doing business. Good luck everyone, and Happy Holidays.
Those are some compelling reasons. I hope you don't mind if I borrow a couple of them.
This is great information. Have you been successful getting lenders to do short sales when clients are upside down $75k+ from an equity perspective?
Thank you Brian, for your comment. Yes absolutely you can borrow these points and/or the chart.
Thank you Dean for your comments. I do not believe I have done a short sale that has not been at least upside down $75,000. We did one 2 months ago where he owed 4.5 million and the bank netted a little under 3 million. We do have a short sale legal department on staff and they have been around 92% close ratio. Thanks again.
David:
Very helpful information on SS. I am very green with respect to them and this info is terrific. It really shows that it is worth it to pursue the SS vs the foreclosure with respect to the sellers future financial life.
Kathy, thank you for your comments. Unfortunately, we all will have to deal with these short sales for many years to come. We might as well have all the information in order to educate our clients. Have a wonderful New Year. Lets Shine in 2009!!!
In Virginia I think it is a little easier to put someone in a home after bankruptcy chapter 7. I just put someone in a home that was discharged in 2006 for their bankruptcy. Thought I would share that information with you. Nice post