- Avoid incessant collection calls and correspondence from lender
- Taking a proactive step to resolving a debt
- Allows the seller to rebuild credit and show a positive resolution
- Most likely avoid a deficiency judgment
- Seller experiences a faster and more positive experience vs the foreclosure process; less strain on the family; less advertisement and publication of deficiency in local paper; no public auction at the door step; no eviction or sheriff.
- Possible relocation assistance
Benefits of the Negotiated Promissory Note with a Short Sale: There are instances when the lender asks the homeowner/ seller to sign a negotiated promissory note for a portion of the remaining unpaid balance as part of the short sale negotiation. A negotiated promissory note is a better option than foreclosure and the resulting deficiency judgment.
Benefits of the negotiated Promissory Note include: The promissory note is not a judgment and does not show up on your credit report.
The homeowner/ seller agrees to a negotiated amount which is typically paid monthly and often with no interest.
If you are unable to pay the note, you may be able to renegotiate the terms and a new payment for a period of time.
Once the promissory note is paid the lender should remove derogatory credit postings concerning the payoff of the mortgage, thereby repairing damaged credit.
A Fannie Mae mortgage can be obtained within 2 years following a short sale.
A Deficiency Judgment with a Foreclosure: A deficiency judgment is a monetary judgment. This allows the lender to use a variety of methods to collect the balance owed. They can elect to garnish wages, attach autos or other valuable possessions, as well as attach and freeze bank accounts. In addition, the judgment usually has interest payments included.
A foreclosure and subsequent judgment will be on your credit report and will impact you whenever credit is a factor. A Fannie Mae mortgage cannot be obtained until 5 years following a foreclosure judgment.
Short Sale (SS) Advantages for the Sellers vs the Disadvantages of the Foreclosure
SS: Control the timeline of their relocation and move out with dignity
Foreclosure: Lender forces the sale and takes title to the property
SS: Property is sold and in many cases the lender accepts proceeds as full payment of debt
Foreclosure: Depending upon the type of loan, the bank has the right to pursue a deficiency judgement.
SS: Eliminate deficiency or negotiate down to a lower amount of liability
SS: Be released of liability now
SS: Avoid out of pocket expenses unless requested by the mortgage servicer
SS: Credit FICO score may drop between 75-125 points
Foreclosure: Credit FICO score may drop between 200-280 points
SS: Recover their credit ratings faster than if they were foreclosed on
SS: Shorten the time frame in which they can repurchase a home
SS: Avoid damaging their public records
Foreclosure will remain as public record on a credit report for ten or more years. |
SS: No foreclosure is reported to the credit bureau
SS: Short Sale is not reported on a credit history. There is no specific reporting term for short sale. The loan is typically reported as “paid in full, settled”
SS: Avoid answering “yes” to a foreclosure on future loan applications
SS: Avoid employment issues for current or future positions
Foreclosure may be grounds for termination or reassignment in a particular employment field; employers have the right to check credit as a part of a background check.
SS: Avoid issues with security clearance for military personnel
Foreclosure can be one of the most challenges obstacles to obtaining a security clearance, other than convictions for felonies and serious misdemeanors.
SS: Avoid the “embarrassment” of having “bank owned” sign in the yard
SS: Proceed with a short sale even if they are not late on their payments
SS: Avoid paying closing cost and real estate commissions. lenders generally for the normal and customary closing costs and the real estate commissions on a short sale transaction. |
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