Before we discuss the pros and cons of foreclosure vs. short sale, let us briefly define the term "short sale":
The "short" in short sale refers to the payment of the agreed amount in a sale transaction due to a "shorter" than the mortgage balance on the property. In other words, there is more owed on the home page, as it will sell at present. In a successful short sale requires the lender to accept less pay in order to facilitate a sale of the houseand thus avoiding costly process of foreclosure.
So why, one might ask, I was a short sale, if I'm facing possible foreclosure on my home page?
The short answer is that a short sale is less damaging in terms of long-term impact on your credit card. Let's take a look at some differences between foreclosure vs. short sale:
Short Sale:
* Negotiated solution
* Seller's credit bruised
* No legal fees
* Peace of mind
* BuyProperty again in two years
* Util negotiated
Foreclosure:
* Out of court settlement
* Seller's credit ruined
* Substantial legal fees
* No peace
* Real estate buying again in 8-10 years
* All liens exhausted
Credit Score
The loss of credit points from a short sale transaction can be almost as bad as a foreclosure. You can actually lose as many as 300 points. For example, if you have a FICO score of 700, you can be leftwith only 400th The significance of this is the fact that means with a high credit score that you will enjoy lower interest rates when you take out a loan.
Credibility
If you sell your house through a short sale transaction will show on your credit report as a "pre-foreclosure in redemption status. Although it sounds better than a "foreclosure" entry, it is still a negative entry that can damage your financial reputation.
Waiting
This is perhaps the most importantDisadvantage of a foreclosure vs. short sale. With a foreclosure on your record can lead to waits as long as 8-10 years before you can qualify to buy another home at a reasonable interest rate. However, a short sale will require probably just wait another two years.
Tax Relief
Another important point to note: The Mortgage Forgiveness Debt Relief Act of 2007 provides help to some of those who have a short sale, deed-in-lieuor foreclosure on or after 1 January 2007 to 31 December 2009. Check with your attorney or CPA to see if you qualify for an exemption under this law. If not granted, would have to pay tax on the amount of debt by the lender to pay.
Disclaimer
While every effort has been made here to provide a useful overview of foreclosure against short selling, there is no substitute for competent legal advice.
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