If you are going to let your house go into foreclosure and walk away, you need to read this quick article. It tells you the advantages of foreclosure over a short sale, and when a short sale should be chosen over foreclosure.
First, by foreclosure we mean selling your house through a trustee sale or sheriff’s sale. An involuntary sale. The price that will be obtained is likely to be less than what you owe. The lender automatically puts in a credit bid and will take title to your house. In some states there is a redemption period but essentially the house is gone.
Your credit in a real estate mortgage foreclosure situation will be reported as “foreclosure” and in states where there are court foreclosures, there will be a judgment sometimes against you for the deficiency. This judgment will be reported on your credit as a public record.
If you have two mortgages, the second mortgage holder may not get anything. They will be wiped out. Since they did not elect to foreclose, they still have one arrow left in their quiver. They can sue you for breach of contract. Although the lender may not have an appetite to sue you, they can offload the suit to a collection agency or simply sell your loan for a few cents on the dollar to a collection agency who will come after you.
A short sale is reported on your credit as “paid – settled” or sometimes even “paid – satisfactory.” Paid – settled will lower your FICO credit score but not by a lot. And you may be able to get the lender to report as Unrated or simply to report nothing at all. You may be able to persuade the holder of the second mortgage to release you from liability, along with the holder of the first mortgage.
So you walk away with decent credit and you don’t have to look over your shoulder for the next four years, expecting a lawsuit or being hounded by creditors.
Consult your accountant and attorney to help you make this crucial decision.
If you have any questions about short sales, foreclosures, or would like to learn more about the process, please don’t hesitate to email, or call 561-241-7004 at any time.
