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How is a short sale better than a Las Vegas Foreclosure?

Asked by Trulia Las Vegas, Las Vegas, NV Thu Nov 15, 2012

Help the community by answering this question:


As a home owner, short sales will enable you to get financing to purchase another home quicker.

Here is what my latest research has revealed:
The latest Fannie Mae guidelines state that after a short sale, there is a mandatory waiting period of two years for a loan with an 80% maximum LTV (loan-to-value ratio), or four years for a loan with a 90% LTV.
FHA requires borrowers who weren't paying their mortgage when they sold their house to wait three years before they can qualify for a home loan. That time penalty may be waived in certain cases, including long-term job loss. There is no FHA time penalty for homeowners who made their house payments in the 12 months before their short sale. The size of a down payment can also shorten the waiting period.
The USDA loan program is a popular option for people who have had a short sale or foreclosure in their past because it is one of the mortgage programs with the shortest waiting periods and most flexible underwriting guidelines. The waiting period for a USDA loan after a short sale can be as little as 2 months in the right situation.
With a foreclosure, the waiting period is 5 years up to 7 years. If you have extenuating circumstances-- typically situations beyond someone's control, like a job loss -- it can be cut down to 3 years.
Fannie Mae has just upped the length of time it takes from the completion of a foreclosure sale until the borrower can get a new mortgage from four years to five years.
Perhaps the best option for obtaining a mortgage after foreclosure is with a federally insured FHA loan. The minimum time between the completion of foreclosure until when you can be approved for an FHA loan is three years -- whether or not there are extenuating circumstances. Still, FHA borrowers will have to show that they've been practicing good bill-paying habits since the foreclosure.

Simon Campbell -
1 vote Thank Flag Link Fri Nov 16, 2012
If you are a BUYER, a closing is almost certain with an REO whereas having your offer accepted by the home owner (HO) in a short sale, only guarantees that you get to wait until the lien holder either approves or rejects the owners financial hardship and your offer. This process could take up to 6 months and maybe more. If the HO has a financial hardship and has provided ALL the documents needed by the lien holder, the lien holder may approve the short sale. Of course then, the lien holder will do their own evaluations and determine if your offer is a valid offer, fair market value or if they want more $. In addition, but entirely separate issue, the lien holder may (likely) ask the seller to bring cash in at closing in order to release them from the mortgage debt in the future. If the HO can't or won't bring in cash, then the deal is dead. Also, if the HO has NOT been paying the HOA fees, sewer, and or trash, one or all may have liens on the property. Lien holder/mortgagee does not NORMALLY pay for liens in a short sale, that would be the responsibility of the HO in order to allow for a successful closing. Often times, the buyer is ASKED to pay it for the seller but, depending upon your lender, you may not be permitted to. However if it is to costly to pay these liens, the deal is also dead. The list goes on, and on of the issues surrounding the difference of purchasing a home that is in a short sale and an REO. The REO is a property owned by the lien holder and they will indeed sell it and they often go extremely fast once listed-especially since we are extremely short on listings currently.

However, if your question is from the SELLER’s perspective, a short sale is more often better for the seller to facilitate a successful short sale and AVOID a foreclosure. To over simplify it, you as the seller, have the opportunity to be legally released from the liability of the mortgage debt where as in a foreclosure the lien holder reserves the right to seek a judgment against you regarding both the 1st & the 2nd. Also important is that you can immediately begin rebuilding your credit as soon as the short sale is finalized. A foreclosure stays on your credit for 7 years after the date of the foreclosure. Once you stop paying, your credit will continue to be hit, every single month the lien holder reports you for not paying and they will continue to do that in a foreclosure. If you can negotiate a short sale the seller can purchase another home almost immediately if they have good credit (other than their mortgage) appropriate income, and their down payment!!

Valerie Edwards
Premier Real Estate
(702) 371-5533
1 vote Thank Flag Link Thu Nov 15, 2012
Thank you for providing context for both situations. Happy Thanksgiving!
Flag Wed Nov 21, 2012
A foreclosure can be sold quicker and a lot more easily than a Short Sale. At times, Short Sales can be complex.

I hope this answered your question! If you have any further questions, please feel free to contact me by the ways below.

Wishing you all the best,

De Vonte Williamson , LSA
Proudly Serving Long Island
Coldwell Banker Residential
"I Stand Behind Getting You Results!
1 vote Thank Flag Link Thu Nov 15, 2012
Debt Foregiveness may be the best reason. If you have a home with a mortgage of $300,000 and in todays market the home will sell for &150,000 the bank can forgive the other $150,000 which includes closing costs,agent commissions,property taxes and other costs. It seems hard to believe a bank would agree to this but they approve short sales every day. Our team has closed over 125 successful short sales. Another reason is often a short sale can have a lesser impact on your credit.We would need to talk more about the paticulars of this since everyones circumstances are different. You should also consider that depending on your situation it may be possible to purchase a home again in as little as 3 years. It can be double or triple that after a foreclosure. I work with attorneys some of which will do a free consultation. I always recommend that homeowners in trouble that have a hardship talk with their accountant and an attorney to find out if a short sale is the best option. Sometimes it is and other times it is not. It is always good to sit down with a experienced Short Sale agent and ask the tough questions and get all the information you need to make an informed decision. I am always available to answer your questions.
Thank You
Suzie Marquardt
0 votes Thank Flag Link Thu Nov 15, 2012
Are you asking from the Buyer's Perspective? Or the Seller's Perspective?

From the Buyer's Perspective: A Short Sale can take minimum 3-6 months to close escrow that's the downside. One way it could benefit the Buyer, is usually the Seller or the tenant still lives in the home and you can ask them questions regarding the condition of the home and if they are aware of any issues with the home. With someone living in the home the house will not deteriorate as quickly. Which is why Short Sales are usually in better conditions because people still live in the home.

Foreclosure homes for Buyers: The Benefit is you can close sooner. About 30-60 days from when the offer was accepted by both parties. The properties are SOLD in "AS-IS" conditions which means the Bank does not want to make any repairs to the property. You also don't know what type of condition the property is in, since the home has usually been vacant for several months to couple years. What you see is what you get. So get a Home Inspection on any property you plan on purchasing, even a New Home.

From the Seller's Perspective: A Short Sale will benefit them by not having a Foreclosure on their credit for the next 7 years. With a Short Sale the Listing agent would be able to negotiate with the Bank to Release the Seller of any Deficiency Judgment, releasing the Seller of any liabilty of the remaining balance from the Leinholder. Another Benefit for the Seller would be as long as they have no mortgage lates and depending on what type of loan they had on their home, they would possibly be able to purchase a home right after they have Short Sold their home. A negative is that sometimes the leinholder will ask the Seller to contribute money to pay the 1st, 2nd, and the HOA.

Foreclosure from the Sellers View: You will have a foreclosure on your credit for the next 7 years. The Seller's credit will take a hit due to all the mortgage lates. You won't be able to get an insured mortgage loan for 2 years from the date the property was foreclosed on. You would probably be able to get a Hard Money loan with 30-40% down and with an interest rate anywhere from 9-12%.

The Benefit for Sellers planning to do a Short Sale or Foreclosure on their primary residence is they will be protected by the Mortgage Forgiveness Debt Relief Act. This set to expire Dec 31, 2012. You can go to website to get more information.

Disclosure: The information provided here is given with a broad scope. Each individual situation is different and it is recommended that you speak with an attorney, CPA, and Realtor based on your specific situation. So you can be giving information that will benefit you based on your situation.

Best regards,

Chris Harrison
Barrett & Co., Inc.
702.592.9510 ph
0 votes Thank Flag Link Thu Nov 15, 2012
In a short sale there are a lot more steps to take. A foreclosure the bank is ready to sell the property.
0 votes Thank Flag Link Thu Nov 15, 2012
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