Here are a few of the most common questions from homeowners who may need a short sale.
Q: What are the advantages of a short sale vs. letting my home go to foreclosure?
The primary advantage to doing a short sale vs. a foreclosure is that in a short sale the debt is settled and you no longer owe the bank any money. If your home goes to foreclosure, you may still be liable to the lender. Rhode Island is a deficiency judgment state; this means that the bank has the right to pursue you for the remaining deficiency balance after a foreclosure sale.
A secondary (but also important) advantage with a short sale is your credit takes much less of a hit compared to a foreclosure. The impact on your credit will vary depending on how established your credit is at the time of the short sale or foreclosure. Your credit will rebound much faster from a short sale as compared to a foreclosure or bankruptcy.
Finally, Fannie Mae & Freddie Mac revised their guidelines in August of 2008 with regard to how they view borrowers who have filed bankruptcy, gone through foreclosure or done a short sale. Through these new guidelines, they are in effect severely penalizing those who go the route of foreclosure or bankruptcy, and rewarding or encouraging those who do short sales, which they view as the borrower doing the responsible thing in light of the circumstances. Per recent Fannie Mae / Freddie Mac guidelines, borrowers who file bankruptcy or go through foreclosure have to wait up to 7 years to buy another home. By contrast, the new guidelines stipulate only a 24 month waiting period after a short sale, so borrowers who do a short sale can buy again in just 2 years.
Q: What if I have a first and a second loan on my property?
Many properties today have more than one loan. For the short sale to reach a successful close of escrow, both lenders have to approve the short sale and agree to settle the debt. There is more work required with more mortgages but this is a common practice in real estate today. The 2nd mortgage is in the 2nd position behind the 1st mortgage, meaning the first mortgage gets paid first with a sale and if any proceeds remain they go to the 2nd. However, many homes today have a value below the first mortgage. In this case the 2nd mortgage will not receive any proceeds with a foreclosure. This is one of the reasons the 2nd mortgage is motivated to reach an agreement on a short sale.
Many times the 1st Mortgage Company will pay an amount to the 2nd Mortgage Company in order for the second Mortgage company to release their lien. In other cases, the seller will pay a small nominal amount towards the 2nd Mortgage to settle it.
Q: Are there any advantages to letting my home go to foreclosure vs. doing a short sale?
We can’t think of even one reason a foreclosure benefits the homeowner more. The impact on your credit from a short sale will be significantly less than with a foreclosure and you will be able to buy again within 2 years, compared to up to a 7 year waiting period to buy a home after a foreclosure.
Q: How much does a short sale cost?
A short sale costs the homeowner nothing. The lender will pay all closing costs, escrow fees, commissions etc. The lender may also pay any outstanding property taxes.
Q: How long does it take to complete a short sale?
Each property is unique. Local real estate market conditions also play a role. The important thing is to get all of the documents together and start the process as soon as possible. Typically once we find a buyer for your property a short sale can take 90 - 180 days on average to complete.
If you have additional questions please contact us today at 401-941-5291 or at email@example.com.