Why You Should Consider a Short Sale Over Foreclosure
By Ramsey Judah
May 6, 2009
When a homeowner is unable to make the mortgage payments, the first thought that comes to mind
is typically foreclosure. Well there is another option that has been seeing some congressional
attention lately: the option of a "short sale."
A short sale is when a homeowner sells his home at a price below the loaned value. For instance,
let's say a homeowner has a mortgage for $150,000, but he was only able to get his home under
contract for $120,000. The bank must then be contacted and negotiated with in order for it to take the
loss, and not the homeowner.
In Illinois, the Realtor and the attorney take care of the paperwork in order to negotiate with the bank.
It is a process though. One has to remember that banks are bureaucracies and paperwork goes
from one level to another and takes numerous business days before they even file the forms. If the
bank agrees to the sale, it takes over proceedings from the homeowner.
The biggest risk a seller encounters in a short sale is the possibility of a "deficiency judgement." This
is a judgement the bank renders against the seller's record for the loss. In most cases, the bank
forgives the seller for it and it appears as "debt settled" on the credit report.
According to Attorney Amy Mennecke, a partner of Martin, Mennecke and Assoc, those who have
second loans on the home or took out large home equities are the ones at risk for a "deficiency
judgement," but there is a solution: negotiate.
"I've had a couple who had nearly a $100,000 loss on their short sale and the bank wanted to issue a
judgement," Amy says. "But I advised them on it and told them to bring $2,000 to the table and the
bank took it and settled the debt without a judgement."
It does, however, adversely affect the homeowner's credit but not near as much as a foreclosure
would. Short sales typically drop the credit score by 200-300 points and affect a new home purchase
for about two years. This is much more efficient than a foreclosure considering a foreclosure would
cause a buyer to not be able to purchase a home for up to 8 years.
A homeowner may even be able to buy a home much sooner than two years after a short sale if he or
she sells the home and is not late on mortgage payments for more than 60 days, or two billing
cycles. Short sales have been known to report wrongly though, so make sure you know exactly what it
says on your credit report concerning it and that it stopped reporting. If it keeps reporting, it will cause
the credit score to get worse and would prolong what would normally be a two year process.
Ramsey Judah is a Broker with US Homes and can be reached at ramsey@ushomesrealestate.com.
By Ramsey Judah
May 6, 2009
When a homeowner is unable to make the mortgage payments, the first thought that comes to mind
is typically foreclosure. Well there is another option that has been seeing some congressional
attention lately: the option of a "short sale."
A short sale is when a homeowner sells his home at a price below the loaned value. For instance,
let's say a homeowner has a mortgage for $150,000, but he was only able to get his home under
contract for $120,000. The bank must then be contacted and negotiated with in order for it to take the
loss, and not the homeowner.
In Illinois, the Realtor and the attorney take care of the paperwork in order to negotiate with the bank.
It is a process though. One has to remember that banks are bureaucracies and paperwork goes
from one level to another and takes numerous business days before they even file the forms. If the
bank agrees to the sale, it takes over proceedings from the homeowner.
The biggest risk a seller encounters in a short sale is the possibility of a "deficiency judgement." This
is a judgement the bank renders against the seller's record for the loss. In most cases, the bank
forgives the seller for it and it appears as "debt settled" on the credit report.
According to Attorney Amy Mennecke, a partner of Martin, Mennecke and Assoc, those who have
second loans on the home or took out large home equities are the ones at risk for a "deficiency
judgement," but there is a solution: negotiate.
"I've had a couple who had nearly a $100,000 loss on their short sale and the bank wanted to issue a
judgement," Amy says. "But I advised them on it and told them to bring $2,000 to the table and the
bank took it and settled the debt without a judgement."
It does, however, adversely affect the homeowner's credit but not near as much as a foreclosure
would. Short sales typically drop the credit score by 200-300 points and affect a new home purchase
for about two years. This is much more efficient than a foreclosure considering a foreclosure would
cause a buyer to not be able to purchase a home for up to 8 years.
A homeowner may even be able to buy a home much sooner than two years after a short sale if he or
she sells the home and is not late on mortgage payments for more than 60 days, or two billing
cycles. Short sales have been known to report wrongly though, so make sure you know exactly what it
says on your credit report concerning it and that it stopped reporting. If it keeps reporting, it will cause
the credit score to get worse and would prolong what would normally be a two year process.
Ramsey Judah is a Broker with US Homes and can be reached at ramsey@ushomesrealestate.com.
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