If it's truly only $7k that you need to bring to closing (your agent will do a 'NET' sheet for you), and you have the funds readily available, and you MUST move due to a job transfer, family issues, etc. then to me that's a small price to pay to avoid a short sale.
The alternative is waiting out the market and see where it ends up in a year or two. You could be $14k upside down in no time, or you could be $7-10k on the plus-side as well. None of us have a crystal ball, and anyone telling you they 'know' this market is going to fully recover in a year or two or three is either sadly misinformed or lying to you.
One only needs to look at the steady flow of defaults and foreclosure filings in the sub-prime market as well as the prime-loan market to see that we're a LONG way off from recovery.
Don't forget there's also another real estate correction looming on the horizon; commercial real estate loan defaults and foreclosures. While it may not affect residential as much, it will affect the banks who in turn will alter the way they loan money, which will trickly down to the buyers of residential real estate.
Century 21 All Star, REALTORS
Although it would be nice, doing a short sale is not just a choice you get to make. It has to do with whether you can afford the payment, or whether you are in a distressed situation. Although James is in Illinois, he has provided you with a great answer. In reality, if you need to sell, you may not have a choice to short sell. You should contact a real estate attorney for clarification.
Hi. The good news $7K less than what you owe is better than most. If you do not have to move, you may want to wait for the market to come back. Especially, if you still love your home.
if you do have to move, realize that if you do a short sale, it will affect your credit approval for another home at least for a few years. This is why you may want to absorb the loss or not move. If you do wish to consider a short sale, Arizona is a non-deficency state whtich precludes a lender from pursuing collection of the shorted payment on the loan (in most situations). You should check with your attorney to see if this is applicable to you. See the Arizona statute below.
Specifically, Lenders are prohibited by Arizona Statute (33-729) from obtaining deficiency judgments in foreclosures where the land size is 2.5 acres or less and where the property was used as either a single one-family or single two-family dwelling. The actual language from the Arizona Statue follows:
Arizona Statute 33-729. Purchase money mortgage; limitation on liability
A. Except as provided in subsection B, if a mortgage is given to secure the payment of the balance of the purchase price, or to secure a loan to pay all or part of the purchase price, of a parcel of real property of two and one-half acres or less which is limited to and utilized for either a single one-family or single two-family dwelling, the lien of judgment in an action to foreclose such mortgage shall not extend to any other property of the judgment debtor, nor may general execution be issued against the judgment debtor to enforce such judgment, and if the proceeds of the mortgaged real property sold under special execution are insufficient to satisfy the judgment, the judgment may not otherwise be satisfied out of other property of the judgment debtor, notwithstanding any agreement to the contrary.
B. The balance due on a mortgage foreclosure judgment after sale of the mortgaged property shall
constitute a lien against other property of the judgment debtor, general execution may be issued thereon, and the judgment may be otherwise satisfied out of other property of the judgment debtor, if the court determines, after sale upon special execution and upon written application and such notice to the judgment debtor as the court may require, that the sale price was less than the amount of the judgment because of diminution in the value of such real property while such property was in the ownership, possession, or control of the judgment debtor because of voluntary waste committed or permitted by the judgment debtor, not to exceed the amount of diminution in value as determined by such court.
If I can answer any other questions, feel free to ask.
Arizona Homes and Land
While you could rent, do you really want to become a landlord? You also have to factor in the fees for leasing your home (paying the leasing agent, making mortgage payments for the months that your property might be vacant, etc etc). Not to mention the fact that you might not be able to get a high enough rent to cover your mortgage so you could be losing money every month while renting.
If you HAVE to move, your best option is to bring the 7k to the closing. The market could take a few years to get back to normal and I am almost certain that if you rented your home for say 2 years, it could very well wind up costing you more then $7,000.
If you can afford to pay the balance, pay it and avoid the short sale route. Short sales will have a negative effect on your credit score, not to mention the challenge with obtaining another mortgage in the future (short term).
Maybe you don't sell and instead turn your home into a rental investment and sell when the market will allow you to not take a loss.
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