Charlotte Foreclosures and Charlotte Short Sales

The Benefits and drawbacks

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Short sales happen when a lender agrees to accept less than the amount owed against the home because there is not enough equity to sell and pay all costs of sale. Not all lenders will negotiate a short sale, and that is why a real estate agent or a lawyer can be a great help by contacting the lender’s loss mitigation department to find out. You’ll hear the myth over and over: “Short sale protects your credit.” Not true.

Your credit will be affected whether you do a short sale or a foreclosure. There is one exception; if you have no 60-day-plus late pays on your credit report, Fannie Mae may still offer you a loan to buy another home. However, most people who sell on a short sale are in default past 60 days, so this exception does not apply to them. Although going through foreclosure is often uncomfortable, as a seller there are benefits such as no  mortgage payments to make; foreclosure proceedings take months to finish; the home is still yours until the foreclosure is final; no strangers will be wandering through your home and banks sometimes give cash for keys after public sale.

Few people really want to have to go through the experience of a foreclosure. The main disadvantages from it are the right of home ownership is taken away; the bank may post a Notice of Public Sale on your front door.  Your credit takes an ease dive and it will stay on your credit report for 10 years and under Fannie Mae guidelines, you will be ineligible to buy another home for 5 years.

On a short sale as a seller you may experience benefits such as no mortgage payments to make, unless you choose to make them; you will be eligible, under Fannie Mae guidelines, to buy another home in 2 years instead of 5 years. And if your credit report does not show a 60-day plus late pay, under Fannie Mae guidelines, you will be eligible to buy another home immediately. Still, you may experience some of the same drawbacks as a foreclosure, but they might be less intense. 

The bank will want to examine personal records such as tax returns, bank accounts, assets and liabilities, in addition to request a hardship letter from you. Having buyers all over your home meaning you have to keep it in spotless condition for weeks or months until an offer is received and putting up with traffic through your home. There is no assurance the bank will accept a short sale offer and the derogatory credit will stay on your credit report for 7 years. Many sellers, though, are really motivated to do a short sale for the chance to buy another home in two years.

Good credit behavior can supplant bad credit after two years, even though the derogatory will remain. Sellers may wonder whether doing a short sale would affect their credit less than opting for a foreclosure and whether there are other advantages between the two. While in foreclosure, and depending on state laws, a seller could possibly stay in the property, essentially rent free, for four months to a year before being forced to vacate.

But that fact alone does not mean a foreclosure is better. While a short sale involves offering the home for sale, generally listed through MLS, potential home buyers will make appointments to view the home, some will make lowball offers, agents might hold open houses and, overall, a seller’s life will be disturb, all in the hopes that a buyer will buy the home.