This week, we are looking at the advantages of a short sale over a foreclosure from five different perspectives: the Sellers', the Neighborhoods', the Banks', Prices and the Children. – The KCM Crew
Real estate professionals are handling an increasing number of distressed properties. Which is a better alternative for the seller – short sale or foreclosure? Here are the advantages of doing a short sale:
It allows a more dignified exit from the home.
In a foreclosure, an official eventually comes to the home and tells the occupants to leave – immediately. In a short sale, the seller knows the closing date and can prepare in advance for the move. In many cases, their neighbors, friends and family needn’t even know of their financial difficulties.
The seller could possibly avoid a deficiency judgment.
In almost all distressed sales, the bank can legally go after the seller for the difference between the loan amount and the selling price (known as a deficiency judgment). Most banks will release the seller from this obligation in a short sale process.
A short sale has less of a negative impact on their credit report.
Once a short sale is completed, the sellers begin to clean-up their credit report. The timeline can be much longer as a foreclosure proceeds through the process.
(For more on this go to: Short Sale vs. Foreclosure: A Short Sale Always Wins)
The seller can return to homeownership more quickly.
If a family allows the house to go to foreclosure, it may take 5-7 years to again qualify for a mortgage. In the case of a short sale, the timetable can be 2-4 years.
There is a ticking clock on tax relief.
There is currently legislation, the Mortgage Forgiveness Relief Act of 2007, ensuring that homeowners who received principal reductions or other forms of debt forgiveness on their primary residences do not have to pay taxes on the amount forgiven. This legislation is set to expire at the end of the year.
(For more information: Mortgage Forgiveness Debt Relief Act: Will It Be Extended?)
Tomorrow, we will look at the impact of a short sale compared to a foreclosure on a neighborhood.