Seller Resources - Articles

Short Sales Almost Always Better Than Foreclosures  

(Refer to IMPORTANT Chart Below)

When does foreclosure begin?
Lenders will initiate foreclosure proceedings when borrowers become delinquent in their mortgage obligations, usually after three payments are missed. The lender will then notify the borrower in writing that he or she is in default. The lender can request a trustee's sale or a judicial foreclosure, in which the property is sold at public auction. A borrower can cure the default by paying the overdue amount and the pending payment after the notice of default is recorded, usually no later than a few days before the property's sale. Some sales allow the successful bidder to take possession of the property immediately. If the former owner refuses to vacate the premises, the court can issue an unlawful detainer that allows the sheriff to come out and evict them. Borrowers should do everything they can to avoid foreclosure, which is one of the most damaging events that can occur in an individual's credit history.  See chart below: 

How long do bankruptcies and foreclosures stay on a credit report?
Bankruptcies and foreclosures can remain on a credit report for seven to ten years. Some lenders will consider a mortgage application earlier if the buyer has re-established good credit.  The circumstances surrounding the bankruptcy can also influence a lender's decision. For example, if you went through a bankruptcy because your employer had financial difficulties and as a result you lost your job or worked fewer hours, a lender may be more sympathetic. If, however, you went through a bankruptcy because you overextended personal credit lines and lived beyond your means, the lender probably will be less inclined to be flexible.

Can a home seller sell a home for less than its mortgage?
Yes, in some case you can sell your home for less than what you still owe on the mortgage, but this is complicated process and depends on the lender. This situation is known as a "short sale." Sometimes a lender will be willing to split the difference between the sale price and loan amount, which must still be paid. A short sale may be more complicated if the loan has been sold to the secondary market, because then the lender will have to get permission usually from Fannie Mae or Freddie Mac, the two major secondary-market players. If the loan was a low-down payment mortgage with private mortgage insurance, then the lender also must involve the mortgage insurance company that insured the low-down payment loan.

How does a home go into foreclosure?
Foreclosure proceedings usually begin after a borrower has skipped three mortgage payments. The lender will record a notice of default against the property. Unless the debt is satisfied, the lender will proceed toward foreclose on the mortgage and set up a trustee sale.

How does a homeowner sell a slow mover?
Even in a down market, real estate experts say that price and condition are the two most important factors in selling a home. If you are selling in a slow market, your first step would be to lower your price. Also, go through the house and see if there are cosmetic defects that you missed and can be repaired. Secondly, you need to make sure that the home is getting the exposure it deserves through open houses, broker open houses, advertising, good signage, and listings on the local multiple listing service (MLS) and on the Internet. Another option is to pull your house off the market and wait for the market to improve. Finally, if you who have no equity in the house, but are forced to sell because of a divorce or financial considerations, you could discuss a short sale or a deed-in-lieu-of-foreclosure with your lender. A short sale is when the seller finds a buyer for a price that is below the mortgage amount and negotiates the difference with the lender. In a deed-in-lieu-of-foreclosure situation, the lender agrees to take the house back without instituting foreclosure proceedings. 

Foreclosure Compared to Short Sales 

Future Loans - Primary Residence ONLY
Fannie Mae

Not eligible for a Fannie Mae mortgage for 5 years 

Not eligible not a Fannie Mae mortgage for 2 years

FHA Loan - Late

Not eligible for a Fannie Mae mortgage for 5 years 

Not eligible for 3 years after mortgage insurance payment to lender

FHA Loan - Current

Not eligible for a Fannie Mae mortgage for 5 years 

No wait as long as borrower is current on all financial obligations

VA Loan -

Not eligible for a Fannie Mae mortgage for 5 years

3 years

VA Loan - Current

Not eligible for a Fannie Mae mortgage for 5 years

3 years

Conventional Loan - Late

Not eligible for a Fannie Mae mortgage for 5 years

2 years 

Conventional Loan - Current

Mortgage application must include Foreclosure or Deed-in-Lieu disclosure for 7 years that will affect interest rates.

No wait as long as borrower is current on all financial obligations

Future Loans - Not a Primary Residence
Fannie Mae Loan

Not eligible for 7 years May be eligible in 2 years
Conventional Loan - Late

Must disclose for 7 years Must disclose for 7 years
Conventional Loan - Current

Must disclose for 7 years Must disclose for 5 years
Credit Score

Scored down 250 to 300+ for 3 years

Scored down as little as 50 points or more for 12 months or more (depending on other credit history)
Credit History

Foreclosure on public record for 10 years Credit report will show a "Negotiated payment"
Security Clearance

Security Clearance is usually revoked, which may cause loss of employment Usually does not affect Security Clearance
Current Employment

Employers may use as cause for termination
Should not affect employment
Future Employment 

May be considered to deny future employment
Should not affect future employment
Deficiency Judgment 

In most states, Bank may pursue a deficiency judgment to pay the difference between sale price and mortgage amount
Seller may negotiate with Bank not to pursue deficiency judgment -- often successfully
Deficiency Judgment (Level) 

Foreclosure sale price is almost always lower, and therefore amount of Deficiency is almost always higher
Well-marketed Short Sales usually sell at market value that leaves a lower Deficiency if not negotiated to nothing

Jeff and Ginny Mitchell
Jeff and Ginny Mitchell
4625 North Highway A1A Vero Beach Vero Beach FL 32963