Short Sale Effects on a Seller's Credit
Many sellers who are in a financial situation, where they must decide whether to foreclose or sell their Denver home, on a short sale basis do not know what road to take. It is true when a seller decides to foreclose they may have around four months to a year to vacate the foreclosed property. This all depends on the state laws related to foreclosures. During a short sale sellers may have to be out of their Denver home almost immediately. However, foreclosures come with many credit frustrations.
Denver short sales are definitely a lot of work and require constant upkeep of your Denver real estate and constant viewings and appointments with potential buyers. Short sale homes are also listed on MLS. This process can cause many disruptions in a seller's life. Short sales however may be less damaging to a seller's credit. Anytime a short sale or a foreclosure is conducted a seller's credit will take quite a hit, normally dropping 200 to 300 points on their FICO score. The positive on a short sale is that the waiting period for buying another home has greatly reduced and this tempts sellers to conduct a short sale instead of a foreclosure.
Basics of a Denver Short Sale
A lender may agree to accept a lesser payment than what is currently owed on the seller's mortgage due to the lack of equity available; this is referred to as a short sale. This means the seller has no funds to sell or pay the costs of selling the Denver home. Hiring a Denver real estate agent or lawyer is in the seller's best interest, in that they will conduct the business of asking for a short sale from the seller's lender.
A short sale does take a great amount of time and research. It is not an easy decision to put your Denver home up for a short sale. It is easier to conduct a short sale if the seller owes a past-due amount on their mortgage. This used to be the requirement for all short sales, but lenders will now consider a short sale if sellers are current on their payments. If a seller has cash assets, their lender may try to get money from those accounts. Short sales can be a complicated process.
How is the Seller's Credit Affected?
Foreclosures can cause a sellers credit to take a tremendous hit. Their FICO score will decline drastically as follows:
·Foreclosure or Deed-in-Lieu of Foreclosure
These two solutions will scar a sellers credit in an identical manner. A seller's credit score will decline 200 to 300 points according to their current credit standing. The credit score will cause a seller much trouble in getting loans in the future.
·Short Sale
A short sale will also cause the sellers credit to take a big dive. The seller's credit score will dip 200 to 300 points, again causing their chances of future loans to decrease.
Waiting Period Before Buying Another Denver home
·Foreclosure or Deed-in-Lieu of Foreclosure
It may take a waiting period of up to 72 months for a seller to get any type of loan offer with a decent interest rate. Keep in mind, that a short sale will allow the new buyer to purchase what is called an institutional loan within a two year time frame.
·Short Sale
Fannie Mae states that conducting a short sale leads to a shorting waiting period to buy a new home. This makes this the better decision. Only 24 months later, a seller is allowed the option to purchase a new Denver home. This is good news for short sale agents and sellers. The waiting period has made a drastic decrease in recent times.
Short Sale / Foreclosure Deficiency Judgments
There is a downfall for the sellers. A deficiency judgment for the difference of the loan and the amount paid towards the loan may be issued. Typically, a trustee's sale discards the right to a deficiency, with the exception of certain junior lien holder conditions. The state of Colorado does not subject money loans to deficiency judgments. Hard money loans, equity loans and refinances must provide certain conditions.
The current lender does have the right to pursue a deficiency judgment, if it is permitted. A real estate lawyer can help the seller to conclude whether an awaiting foreclosure or short sale is subject to a deficiency judgment.
It is a tough decision on whether or not to go through a foreclosure or a short sale. Hiring a Denver real estate lawyer and taking time to discuss each subject is a seller's best option. This should not be a hasty decision.
