Roberta Murphy - San Diego’s Blog
1,609 viewsPainful Choices: Short Sale, Deed in Lieu or Foreclosure?
Our nation's mortgage meltdown has resulted in many
stressed and relocating homeowners wondering what to do. Some are able to renogiate the terms of their mortgage with their lenders, while others are helplessly under water.They are left to wonder:
Is it simpler to just let the home go to foreclosure?
Perhaps the lender will accept a deed in lieu of foreclosure?
Or should they go through the uncertainties and aggravation of a short sale?
Fannie Mae’s recent announcement seems to provide some real clarity for owners of homes in default.
After studying the announcement, we can only conclude: Avoid foreclosures, bankruptcy and deed in lieu of foreclosure if at all possible. It is far, far better to have a short sale–or a pre-foreclosure sale–as a resolution.
Why?
Under the Fannie Mae Announcement 08-16 (released 06/26/2008), short sales or those engaging in pre-foreclosure sales will be cleared to borrow on another home via Fannie Mae in just two years from completion date of the short sale.
This may be painful, but two years is far preferable to the alternative of 5 to 7 years if the home goes to foreclosure and 4 to 7 years if one opts for deed in lieu of foreclosure.
Please distance yourself from anyone advising that there is no difference between a short sale and foreclosure–or that a deed in lieu of foreclosure may be preferable to either.
If homeowners were to follow this disastrous advice, our country’s real estate market would remain in the troughs for at least another five years–and by that time we might have gone through an economic depression of epic proportions.
If your home is in default, contact a qualified short sale specialist as soon as possible to help avoid the long-lasting consequences of foreclosure. The best buyer for your home may a cash buyer who is in a position to perform on short notice–at no cost to you.
There is even the possibility that your agent and negotiators may be able to get the lenders to drastically reduce or eliminate potential deficiency judgments.
We work with such a buyer–and are willing to forfeit any real estate commission on the sale to this investor group, because they will eventually turn around and list with us. An agent in your area may be willing to do the same.
Wherever you live, it is imperative that you act immediately if you are in danger of losing your home. If you let it go to foreclosure, you could be throwing away buying opportunities for the next five or so years.
Fair Housing and Equal Opportunity
Comments
I have not seen much talk or reporting on short sales, so I applaud posts like yours the inform distressed home owners of other options. I think real estate professionals can provide a great service by making owners more aware of short sales and the trade offs with foreclosures.
This will be crucial to the recovery of our real estate markets.
not been able to sell for 5 months, do I need an attorney to represent me or
can I just do this with the bank and myself? thank you any advice you can give me.
and i did advise them of my intentions. My realtor also suggests
that i do this before they foreclose.
Theresa from Hawaii
From a real estate agent you'll hear an auto-pilot response of 'short sale!!'. In actuality your credit will be impacted the same regardless of whether it's a short sale, deed-in-lieu or foreclosure. You'll take an equal hit to your FICO regardless. See:
http://www.myfico.com/CreditEducation/Questions/foreclosure-alternatives-fico-score.aspx
The only possible difference is you may qualify for an insured mortgage sooner following a short sale than a foreclosure. Fannie Mae got real fearful of the 'walk aways' and enacted new policies to do their best to scare people to pay into insurmountable debt as long as they could coax them to. At a minimum, be wary of the motives here.
Without knowing all your finances (which is probably for the best on a public internet board) it's impossible to respond to your situation with any accuracy. I'd highly recommend you consult with an attorney or CPA who can review your unique position and provide an accurate assessment of your best course of action. You're unlikely to find unbiased advice around these parts.
To do a deed in lieu, some banks like mine, require that your property is listed with
a broker for a minimum of 3 months showing that you made an attempt to sell, that
you lowered the price, etc. You need to check with your bank to see what their
requirements are before you make a decision and then you need an attorney just to
be sure that years later they dont come after you for payment. I am exactly your same situation.
Today I sent my papers to the bank to see what happens.
In California purchase money loans are non-recourse. Walking away provides people protection from further deficiency judgements. A short sale does not unless it contains a written release stipulating that there will be no deficiency pursued. Each lender has different policies and some will put this in writing while others won't. Blanket advice is very dangerous as each case is different Clients need short sale representation that understands the intracacies of the federal and state laws, that representation should include an attorney working hand in hand with an agent. That agent needs to be ready to tell their client that they should consider walking away from an improper short sale acceptance letter. Most agents wont walk away from their commission checks at this point. Clients need one that will.