Hi, If I file for bankruptcy, will it make a difference if I lose my home through foreclosure as opposed to short sale when I want to buy a home ?

Asked by Erica, 91915 Tue May 25, 2010

Facing difficult decisions, Trying to figure out if doing a short sale is better than foreclosing when going through a bankruptcy. This relates for the future if I qualify to buy a home will the lender see short sale as favorable even though I went bankrupt?

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19
Terri Vellios, Agent, Campbell, CA
Sat Aug 14, 2010
We agents are not to provide legal or tax advice. You should talked with an attorney regarding the potential ramifications of a deficiency judgment, and tax adviser regarding tax consequences. If your loan/short sale hold you to the potential of a deficiency judgment, it may prevent you from purchasing in the future as that debt may pop up again.

Seek legal advice from a trustworthy Real Estate Attorney.
Web Reference:  http://terrivellios.com
0 votes
Valerie Hern…, Agent, Arlington, TX
Sat Aug 14, 2010
To be honest, they are all bad and are going to hit your credit. The question is which one works best for you now in your current situation? Do you have time to liet your home and wait for an offer? Is the bank willing to work with you on that? Do you qualify for a short sale? Yo uneed to make sure you call an agent that is familiar with short sales. They are a lot of work on both the seller and the agent, so you do not want an agent that has never done one before. Best of luck to you.
0 votes
Dallas Texas, Agent, Dallas, TN
Sat Aug 14, 2010
Many instances there is no benefit to file for a bankruptcy AND in some instances THAT causes more damage than good.

Short sales is more favorable for a credit report than a foreclosure HOWEVER it will be 2 - 3 years prior to obtaining a new loan

If you move now with this not impacting your credit scores less of a deposit for you to pay. Once a short sale or foreclosure hits your credit report it tanks your score YOU could be paying double , triple deposits OR apartment complexes do take families with poor credit issues less of a deposit

Lynn911 Dallas Realtor & Consultant, Loan Officer, Credit Repair Advisor
The Michael Group - Dallas Business Journal Top Ranked Realtors
972-699-9111
http://www.lynn911.com
0 votes
Patrick Hale, , San Diego, CA
Thu Aug 12, 2010
Almost 90% of my business is currently short sales.

Yes, doing a short sale can be better than foreclosure if you care about your credit. Even 10 years down the road you will have to check the box that you have been foreclosed on, but there will most likely not be one asking about a short sale.

Depending on if it is your primary home or not, there are many programs out which can help you. To get a better understanding of the options, you can visit our website for info or call me anytime.

Patrick A. Hale, CDPE, RSD
Real Estate Broker & Investor

REO & SHORT SALE EXPERTS WITH A MISSION TO:
"Help Over 360 Distressed Home Owners Avoid Foreclosure"
If You or Someone You Know is in Financial Distress Visit: http://www.SDRealEstate360.com
Web Reference:  http://www.reofsd.com
0 votes
Teddy Jagess…, , Wellington, FL
Thu Jun 17, 2010
Not a lawyer or CPA but can tell you why have both foreclosure and Bankruptcy. Anyway Bankruptcy only delays the foreclosure it does not stop it. Just short sale and you can repair your credit and buy back as soon as two years. Foreclosure 7- 9 years.
Web Reference:  http://sellmypbchomes.com
0 votes
Chris Placen…, , San Diego, CA
Thu Jun 17, 2010
There is big difference between the short sale and a foreclosure if you are looking to buy in the future. If you let the home go to foreclosure it will be 7-8 years before you may be able to purchase again. A short sale is more around 5 years. If you have any more questions, I am a Prudential Short Sale Specialist, feel free to contact me anytime.

Chris Placencia
858.922.2611
cplacencia@prusd.com
0 votes
Keith Manson-…, , Milwaukee, WI
Sat May 29, 2010
The question is why you would be filing bankruptcy? Bankruptcy is going to hit your credit hard and if you file foreclosure or do a shortsale it will get hit again. You really need an expert to sit down and go through your options to understand what you want to do. It depends on the type of bankructcy you are filing and what you are trying to achieve and only a bankruptcy attonrey can tell you that. In general a short sale is better than a foreclosure but it is best to look at all your options before you jump.

Keith Manson
First Weber Group
Certified Distressed Property Expert
Metro Milwaukee

http://www.milwaukeebailout.com
0 votes
Bob Movin-On, , Hartford, CT
Wed May 26, 2010
Erica, here is the straight forward answer to your question. Below is a list of "waiting periods" after all forms of foreclosure. Just to add to that, bankruptcy it self has a "waiting period" of 2 to 3 years.

Ramifications of Foreclosure, Short Sale or Deed-in-lieu-of-foreclosure

Here are some of the ramifications of foreclosure, short sale or deed-in-lieu-of-foreclosure, there are many more like your job, yes employers are checking credit records these days.

Your credit score will be reduced by 200-400 points, short sale a little less 100-200 points.

All forms of foreclosure stay on your credit report for 10 years.

After you have gone through foreclosure, short sale or deed-in-lieu-of-foreclosure there will be what is known as the "waiting period", this period of time varies for each and can be reduced if you had some type of extenuating circumstances that caused the foreclosure:
Waiting Periods to Buy After Foreclosure
* Buying After a Foreclosure
The waiting period is 5 years up to 7 years.
* Buying After a Foreclosure with Extenuating Circumstances
The waiting period is 3 years up to 7 years.
* Buying After a Deed-in-Lieu of Foreclosure
The waiting period is 4 years up to 7 years.
* Buying After a Deed-in-Lieu of Foreclosure with Extenuating Circumstances
The waiting period is 2 years up to 7 years.
* Buying After a Short Sale
The waiting period was just upped from 2 to 3 years. However, if a seller does not have a 60-day late pay, that seller may immediately buy another home. It's a reason to stay current on your payments while the home is on the market as a short sale.
In addition to the waiting period, most loans require a minimum down payment of 10% and a minimum FICO score of 680. The home purchase must also be the principal place of residence, not a rental nor a vacation home.

Lastly, most loan applications will ask the dreaded question "Have you ever been foreclosed on?" this stays with you for life, many think that because it will not show up on the credit report after 10 years they can answer "no", well lying on a loan application is a felony that carries a major jail term, so be aware.

Good Luck
Bob Patrick
Buy a home after foreclosure, short sale, deed-in-lieu-of, bankruptcy or derogatory credit expert
0 votes
Ruth and Per…, Agent, Los Gatos, CA
Tue May 25, 2010
Hi Erica:

Regret your predicament. It is better that you consult with your bankruptcy attorney.
But having filed a Bankruptcy it will not only affect your scores but also length of time
before you can buy a home.

Erica, you should focus on why you are considering these options and not worrying about
your next purchase, as a lot of "forgiveness" rules are changing, as a lot of folks find themselves in
a similar situation.

Best Regards and Goodluck
Perry
Web Reference:  http://www.ruthandperry.com
0 votes
Steven Ornel…, Agent, Fremont, CA
Tue May 25, 2010
Hi Erica,

I believe Don and Julie's comments are the best courses of action because they deal with specifics that only you have knowledge of. You really should seek both legal AND tax advice at this time. Trulia is not the forum for this.

Here's the link to CNN Money.com's coverage of the Fair Isaac Report that estimates credit score hits.
http://docs.Steven-Anthony.com/FairIsaacCreditScoreHits.pdf

There are different waiting periods for purchasing a home depending on what you decide to do. There are various options:

Bankruptcy (Chapter 7 or Chapter 11)
Bankruptcy (Chapter 13)
Multiple Bankruptcy Filings
Foreclosure
Deed-in-Lieu of Foreclosure and Preforeclosure/Short Sale

These are covered in the "Fannie Mae Single Family Selling Guide" found here: https://www.efanniemae.com/sf/guides/ssg/sg/pdf/sel043010.pdf
Details for the different waiting period timelines are found in the "Significant Derogatory Credit Events" section on page 423, which specifically documents waiting periods for the credit situations listed above. Requirements for re-establishing credit are also covered.

Best, Steve
0 votes
Chris Keller, Agent, Del Mar, CA
Tue May 25, 2010
Please contact a real estate attorney!
0 votes
Don Tepper, Agent, Burke, VA
Tue May 25, 2010
You've received good advice already on short sale versus foreclosure and how a bankruptcy might fit into that.

Let me go off in an entirely different direction.

While it's always good to have goals--long term and short term--I think you're somehow getting way ahead of yourself. You're looking at a short sale. You're looking at a foreclosure. You're looking at a bankruptcy.

Don't set your goal as buying another home. Set your goal as figuring out what went wrong and taking steps to correct that. And I know it might be something beyond your control--job loss, illness, etc. Or maybe it was within your control, such as buying at the top of the market around 2006, spending far more than you had, using a terrible loan product.

It doesn't matter.

Fix the immediate problems as best you can. Then fix the things that led up to the problem. Figure out how to prevent those things from happening again. Focus on getting in financially good shape--low or no debt, decent income, good savings, good positive cash flow.

At that point you can start considering buying another house. At this point, though, focus on the more immediate issues.
0 votes
Julie K. Dan…, Agent, Chula Vista, CA
Tue May 25, 2010
My professional opinion is any time a homeowner is exploring options which include disrupting their credit, an attorney and CPA would be the appropriate professionals to speak with on the subject. Each situation is unique depending on the individuals finances, age and employment status.
0 votes
Scott Godzyk, Agent, Manchester, NH
Tue May 25, 2010
A short sale is far better than foreclosure. It shows that you made an effort and will be less harmful on your credit score. The bankruptcy will gove you a big hit but you can rebuild your credit and may get a new mortgage sooner than with a foreclosure and a bankruptcy.

good luck working things out
Web Reference:  http://www.ScottSellsNH.com
0 votes
Sven Yorgens…, Other Pro, Oakland, CA
Tue May 25, 2010
Bankruptcy should only be a stop gap to delay foreclosure if you are that far along.

Fair Isaac released a report that says credit scores are affected about the same, whether a seller does a short sale or foreclosure. Fair Issac says the average points lost on a FICO score are as follows:

•30 days late: 40 to 110 points
•90 days late: 70 to 135 points
•Foreclosure, short sale or deed-in-lieu: 85 to 160
•Bankruptcy: 130 to 240

I hope this is helpful, please consult with a Real Estate Professional and or Legal Counsel to help you through this difficult time.
0 votes
Teddy Jagess…, , Wellington, FL
Tue May 25, 2010
You csnnot do a short sale while you are filing for bankruptcy. A BK will only delay the foreclosure. A Foreclosure is always more damaging than a short sale. either a BK is even worse and the worst case is a BK and foredlosure together
0 votes
Heather Peck, Home Owner, Las Vegas, NV
Tue May 25, 2010
Erica - Short saling your home is much less trauma on your credit than foreclosure. And avoid bankruptcy at all costs. Bankruptcy and foreclosure is a double whammy and you won't be able to purchase a home for more than 10 years or longer.

However, you may have a lot more options if you short sale your home. Especially while there are so many debt forgiveness programs currently if you're utilizing the HAMP or HAFA programs designed to help seller's in distress.

If you'd like me to recommend a good short sale specialist in your area, don't hesitate to contact me.

Heather Peck SFR
Sellstate NRES
Las Vegas, NV
702-595-7380
Heather.Peck@SellstateNRES.com
0 votes
Alan De Los…, , Eastlake Business Center, Chula Vista, CA
Tue May 25, 2010
Erica,
Foreclosure or Short Sale when going through a BK? It does not matter which you do. If you do a BK you will have to wait three years from the discharge date of the BK before you can qualify to purchase another home. Just make sure that if you do a foreclosure or short sale on your existing property that the foreclosure or short sale completion date is before the BK. For example, if you do a BK and it is discharged today and then you do a short sale eighteen months later, the clock starts over again at two years from the date of completion of the short sale before you can purchase a home again. Hope that helps? Feel free to call me if you need more info?
Alan De Los Reyes
619-823-3395
0 votes
Nick Ruiz, , San Diego, CA
Tue May 25, 2010
Short Sale!! Try not to go any other route.
Web Reference:  http://www.NickRuiz.com
0 votes
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