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Short Sale - Better Option Than Foreclosure of Property    

Short Sale - Better Option Than Foreclosure of Property

In the current economic scenario, the number of short sale properties is rising. Most of the borrowers find short selling a home as a better option than embarrassment of foreclosure of property. A short sale occurs when the borrower’s property is sold and the lender agrees to accept discounted pay off. In such circumstances, lender agrees to the lien that is secured to the property upon receipt of less money than is actually owed. Borrowers usually use this alternative when they owe more than their homes are worth. Following are reasons which explain why short selling is considered better option than foreclosure:

  • A foreclosure usually remains on borrower s credit report for a period of seven to ten years. Sometimes a foreclosure victim may face a huge drop in their credit score, making it almost impossible to get a loan, a new credit card or home. If a borrower’s history shows that he had several late payments, in such a case foreclosure may lead to drop credit score by nearly 300 points. However, while short selling a home, some lenders may report it as "paid as agreed" and others might report it as "paid less than agreed." Some lenders might not even report it. Hence, short sale does not affect credit report as negatively as foreclosure.
  • A short sale provides a hope to homeowners to buy another home in coming years. With short selling a home, borrowers become eligible to buy another home in 2 years instead of 5 to 7 years under Fannie Mae guidelines. It may also reduce the amount of money that borrowers may be putting toward rent when they could own another home. In certain cases, a person may be eligible to buy a new home right away after short sale. If borrower’s credit report does not reflect a 60-day+ late pay, under Fannie Mae guidelines, he will be eligible to buy another home immediately.
  • With view to help homeowners, IRS allows tax exemption to those who short sale their home for paying off their debts. Such borrowers may not have to pay tax on the forgiven amount of the sale, which may save thousands of dollars.
  • A foreclosure is rather embarrassing and stressful than short sale. With short sale, you get rid of emotional and mental stress in lesser period of time.
  • Foreclosure amounts to significantly low credit score which may create difficulties for homeowners in getting loan in future. They may have to pay higher interest rates for getting loans. Applying for loans such as loan for a car, education or any other loan is easier after short sales than foreclosure. Loan applications do not enquire much about short sale. Also, avoiding foreclosure puts borrower in better position at securing lower rates on loans in the future.

Overall, short sale is a better option than foreclosure. In fact, a short selling is a real estate transaction which benefits all of the stake holders. A homeowner can control sale of his home instead of lender as in case of foreclosure. Buyers also benefit from foreclosures as they get opportunity to buy a home at reduced prices. Lenders get better return on investment instead of much lower returns from foreclosure auctions. Hence, a short sale leads to win -win situation for all stakeholders.




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