Question by ChrisM: What circumstances would qualify a home foreclosure over a Short sale?
What would qualify a home foreclosure to be better than a quick sale?
I have a home with little to no equity: if I short sale I would be required to pay back the difference to the bank. Would It be better for me to just let the house foreclose?
Best answer:
Answer by David Z
yes let it foreclose. short sales are only helpful to borrower if the bank will foregive the short fall. If they want you to sign a note then just let them foreclose.
Note that if you have a 2nd mortgage they can come after you for that after foreclosure. this is called a deficiency judgement.
Add your own answer in the comments!
The answer here is that there is no simple answer. You need to get all the facts you can and then make a decision. It’s very easy for someone to say just let it go to foreclosure, or declare bankruptcy or whatever else is being thrown at you. What your experiencing now is very difficult. First, here are some questions to ask, the first is, how do you know you would be required to pay back the difference? Did the lender tell you this directly? Secondly, are you behind on payments, if yes, then you will need at least one year from the last late to let your credit cure enough to even consider some financing. Third, if you let the property go to foreclosure, are you willing to deal with the 2-5 year hit you will take with a foreclosure showing on your credit. Last, is bankruptcy an option for you? Last, last, are you prepared to deal with the 1099 next tax year if you short sell? These are difficult questions to answer, and everyone has their own opinion, research the facts, even speak with a realtor to see what you can get for the home, and the best decision you can, not just for now, but for down the road as well
It depends – if the house forecloses, this will seriously impact your credit. If you are able to short sale the property, the bank generally will accept sold price as full payment of the debt.
In terms of your credit history, a short sale is better than a foreclosure. If you really cannot afford to make the payments, and the bank specifically told you – you would need to pay the difference, then maybe you should look into President Obama’s loan modification program. You may be eligible for lowered mortgage payments (check in the sources section for more information on this).
Foreclosure is detrimental to your credit score, so if you want to buy another house in a few years, you may be facing very high interest rates. This option along with bankruptcy, should really be avoided at all costs.
If your house isn’t appraising well, check out the government stimulus programs aimed at helping the housing market first. Then make sure you have the facts straight with the lender, and you should always try to save your credit score. Another option may be to refinance into a lower fixed rate mortgage. If your mortgage rate is higher from a few years ago, keep in mind that rates have dropped significantly since then, potentially saving you thousands.
Regardless of what you choose, make sure you have the right facts, as taking what seems like the easy way out can cost you a lot more in the future.