Short Sales vs Foreclosures: the Seller

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.


About The KCM Crew

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One Response to “Short Sales vs Foreclosures: the Seller”

  1. Paula in Fairhope July 28, 2012 at 3:44 pm # Reply

    I have an offer dated 3/28/12 on a short sale in Gulf Shores, AL. It is supposed to be in the hands of Fannie Mae/Freddie Mac as the last review process. They have had it at least 2 months. This process has take a full 4 months and we are still waiting. On the flip side of this story, I just closed a short sale where the contract was dated April 25th. This one was with Wells Fargo who is notorius for being slow and hard to deal with. I don't know what to do to rush my Gulf Shores short sale to a conclusion before I lose my client. Any suggestions?

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