Posted on: 29th Dec, 2005 11:49am
A Short sale is where the lender agrees to accept an offer for a house that is less than the amount owed on the mortgage. Short sales happen when the owner is behind or about to become behind on their mortgage and want to avoid foreclosure. Moreover, if the home is located in an area where home prices are on a decline, then it may be sold off for less at a price that isn't enough to cover the loan balance.
A short sale is less damaging to your credit score than a foreclosure. Your FICO score will drop by 75-100 points if you do a short sale, compared to 250 if you get a deed-in-lieu.
By attempting a short sale, the borrower can avoid foreclosure and a decrease on their credit score. Moreover, a short sale may be faster and less expensive compared to foreclosure.
A short sale is less damaging to your credit score than a foreclosure. Your FICO score will drop by 75-100 points if you do a short sale, compared to 250 if you get a deed-in-lieu.
By attempting a short sale, the borrower can avoid foreclosure and a decrease on their credit score. Moreover, a short sale may be faster and less expensive compared to foreclosure.
How to negotiate for short sale..
In most cases, borrowers are approved for the sale only after they have been in default and the lender has served them with a Notice of Default. At times, the borrower has the option to negotiate a short sale in case he's unable to pay off the loan and intends to move out. In this case, the borrower should provide the lender with a hardship letter stating why he cannot continue to pay his mortgage and why a short sale is the best option for both parties. It's better to take help of a real estate agent or attorney to negotiate a pre-foreclosure sale with the lender's Loss Mitigation Department.
My credit score is 550 and I am selling a house. I owe 50k and I am looking to do a short sale for 45k should. How does short sale affect credit score.
hello. i am in the process of doing a short-sale. on my home. we have had horrible life experiences in he last 2 years. my home appraised at $180k less than 2 years ago when we refinanced it to try and get out of the problem. i am a veteran of 3 wars, i have lost my son, and my income has been cut by a third. the bpo they did on the home came in at $95k. that is barely 1/2 of what it appraised for less than 2 years ago. i paid pmi after the refinance. i want this behind me. will i have to pay the difference after the short sale? please help, ronnie b. from oklahoma
hi ranie,
i believe your credit score will be doubly impacted due to the short sales on two different properties. both the lenders will report the short sales to the credit bureaus. so, your credit scores are supposed to go down by quite a number of points due to the two short sales.
hi ronnie,
in a short sale you remain responsible for the balance on the loan. thus, your lender can come after you for the difference between the sales price and what you owe on the property. but i believe a deed in lieu (dil) of foreclosure will be a better option than a short sale. in most of the cases, lenders forgive the deficiency from the deed in lieu. you can talk to the loss mitigation department of your lender and check out if you qualify for the deed in lieu. in case the deficiency from the dil is forgiven, you do not have to pay any taxes due to discharge of the indebtedness, provided you have used the property as your principal residence.
i believe your credit score will be doubly impacted due to the short sales on two different properties. both the lenders will report the short sales to the credit bureaus. so, your credit scores are supposed to go down by quite a number of points due to the two short sales.
hi ronnie,
in a short sale you remain responsible for the balance on the loan. thus, your lender can come after you for the difference between the sales price and what you owe on the property. but i believe a deed in lieu (dil) of foreclosure will be a better option than a short sale. in most of the cases, lenders forgive the deficiency from the deed in lieu. you can talk to the loss mitigation department of your lender and check out if you qualify for the deed in lieu. in case the deficiency from the dil is forgiven, you do not have to pay any taxes due to discharge of the indebtedness, provided you have used the property as your principal residence.
My wife and I are currently filing for divorse. The Zillow estimate for our house is $285k, but we owe $315k. We are both looking to purchase smaller homes after the divorse is final. Unfortunately, I'm afraid that the credit hit will not allow us to get good rates, or even be qualified for a new mortgage at all. We both have great credit now (750-800), and little debt. Is it worth it to tap into our 401k's to come up with the outstanding cash it would take if we were to sell the house outright, or is a short sale still a viable option for us?
To SB,
It is never a good idea to use cash from your 401k account to pay off the outstanding balance on the mortgage. You can definitely short sell the property or do a deed in lieu of foreclosure. But both of them will affect your credit negatively. If you work on your credit after the short sale or the deed in lieu, you may not have to wait for too long to qualify for a new mortgage. Till the time you qualify for a new mortgage, you can rent a home and save some money to put down on the loan.
It is never a good idea to use cash from your 401k account to pay off the outstanding balance on the mortgage. You can definitely short sell the property or do a deed in lieu of foreclosure. But both of them will affect your credit negatively. If you work on your credit after the short sale or the deed in lieu, you may not have to wait for too long to qualify for a new mortgage. Till the time you qualify for a new mortgage, you can rent a home and save some money to put down on the loan.
once you do short sale after how many years you ca buy home and do you have to ant tax on the forgiving balance?
Hi Gogi,
Lenders require you to wait for at least 2 years after a short sale to get approved for a new mortgage. A lot depends on how much your credit scores improve since the time of the short sale. If your credit is hugely affected by the short sale and you cannot improve your scores in the 2 years time period, you will have to wait for a longer period of time.
If your lender forgives the deficiency from the short sale of the property and sends you a 1099C Form, you will have to pay taxes on the forgiven loan amount. But if you used the property as your primary residence, you can claim exemption from paying taxes on the forgiven debt amount as per the Mortgage Forgiveness Debt Relief Act of 2007.
Lenders require you to wait for at least 2 years after a short sale to get approved for a new mortgage. A lot depends on how much your credit scores improve since the time of the short sale. If your credit is hugely affected by the short sale and you cannot improve your scores in the 2 years time period, you will have to wait for a longer period of time.
If your lender forgives the deficiency from the short sale of the property and sends you a 1099C Form, you will have to pay taxes on the forgiven loan amount. But if you used the property as your primary residence, you can claim exemption from paying taxes on the forgiven debt amount as per the Mortgage Forgiveness Debt Relief Act of 2007.
We are about to ask for a short sale approval from us bank and hsbc...we have our 1st mortgae at $163,000 and the second at $90,000, totaling $253,000. Our house can only sell for $205,ooo. We can longer afford the $2300 as my hours are alot less since we bought 4years ago. We would like to rent a place which is $1000 a month, saving us $1300 and we would be able to pay the other $100,000 in student loans, med bills and credit cards off. Morally this is not something I want to do but it is affecting all aspects of our life. How hard is it to do a ss with 2 lenders? Also, i spoke with someone who did one with one lender and they agreed on $5,000 over 10 yars, down from $80,000 they origianlly wanted.. Is this common, because with all the debt we haave we can't afford another payment.
to jules,
it completely depends on your lender is they will allow you to short sell the property. the lenders may approve the short sale, but they may also come after you to collect the deficiency from this sale. thus, you need to talk to your lenders regarding whether they will come after you for the deficiency. you can also check out if they will allow you to deed in lieu the property to them. they are unlikely to sue you for the deficiency, if you go for the deed in lieu of foreclosure.
it completely depends on your lender is they will allow you to short sell the property. the lenders may approve the short sale, but they may also come after you to collect the deficiency from this sale. thus, you need to talk to your lenders regarding whether they will come after you for the deficiency. you can also check out if they will allow you to deed in lieu the property to them. they are unlikely to sue you for the deficiency, if you go for the deed in lieu of foreclosure.
of course, with a deed in lieu of foreclosure, the second mortgagee is left hanging. in that event, they are far more likely to seek reparation from you for their loss. the short sale is a far better alternative for them, of course, and therefore more likely to be approved for you. not only that, but the second mortgagee's loss would be quite a bit less, and there can be negotiations as to how much (if any) they'd seek from you post-sale.
So my wife Aunt left her a house that has a morgage worth the same as the house. Can we call the bank and offer to pay off the morgage if they give us a deal ? otherwise we have no use for the house and do not want it unless we can negotiate with the bank to pay it of?
Hi Wally,
If you do not want to keep the house, you can sell it to pay off the mortgage in full. You can talk to the lender and see if they would like to take over the possession of the house. Since the house is worth the same as the outstanding balance on the mortgage, the lender may take over the possession of the house and sell it to satisfy the mortgage lien.
If you do not want to keep the house, you can sell it to pay off the mortgage in full. You can talk to the lender and see if they would like to take over the possession of the house. Since the house is worth the same as the outstanding balance on the mortgage, the lender may take over the possession of the house and sell it to satisfy the mortgage lien.
We just sold our house as a short sale. We were not delinqent on any of the payments. We need to move for my husbands job, so that's why we had to sell. They bank accepted the short sale. How will our credit score be affected? And does the Homestead Act save us from paying taxes on the difference that we get the 1099 for?
A short sale will lower your credit score by 75-100 points. In case of a short sale, you would be responsible for paying off the deficient balance resulting after the sale of the property. Your balance dues will not be forgiven.
Hi,
We're are very late on payments (8) and have been need to either pursue a short sale or a deed in lou by our bank. Our bank has mentioned both.
We'd like to be done with this fiasco- but will the DIL effect our credit for longer???
thanks,
Seattle
We're are very late on payments (8) and have been need to either pursue a short sale or a deed in lou by our bank. Our bank has mentioned both.
We'd like to be done with this fiasco- but will the DIL effect our credit for longer???
thanks,
Seattle
A deed in lieu of foreclosure will have a negative affect on your credit report. It will lower your score by 250 points and will remain on your credit report for 7 years. However, you won't be liable for the deficient amount which results from the sale of the property. In case of a short sale, though you would be liable for the balance amount, your score will be lowered by 80-100 points. If you can afford to pay the deficient balance, then it's a better option to go for a short sale.