The Number 1 Reason To Short Sale
Avoiding Foreclosure Will Save You Money Later
I have a listing in the Sunset West subdivision near Ruhkala Elementary school that has, for one reason or another, not yet come on the market. It’s a short sale and we’ve been working through some issues with their lender that must be worked out prior to going live on the market.
Once we’re on the market, it’ll be a whirlwind and everything has to be in place or we’ll add to the already agonizingly long amount of time it takes to get a short sale approved.
One of the issues has been that my clients are involved in a Chapter 13 bankruptcy and as such, the lender needed a letter from the attorney that the trustee in the matter has approved the sale.
During a meeting with their attorney, my clients were asked why they were selling short rather than to just stay in the home until they were foreclosed upon thus living rent free. In essence, their attorney was advising them to let the bank foreclose. Nice!
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My client, who I happen to see at the Ruhkala Elementary School Carnival, asked me if this was good advice. I said that it wasn’t and here’s why.
1) Waiting for the bank to foreclose means the fate of your living situation is in someone else’s hands and not yours. The bank can drop a note on your door saying that you’ve got to move in 3 days as your home is going on the auction block. Not fun.
2) Foreclosure affects your credit for longer than a short sale. I have a client right now who wants to purchase a home in Auburn. He had a foreclosure 5.5 years ago and can’t get conventional financing because of the foreclosure even though he has a wheelbarrow full of cash, over 40% down on a $785K purchase price. He has to go FHA and that will cost him and additional $500+ a month in private mortgage insurance which is mandatory after a foreclosure.
3) If you sell short, you only have to wait 2 to 3 years for conventional financing on your next home whereas after a foreclosure it’s 7 YEARS to qualify for conventional financing. This will cost you more money down the road as the primary financing option will be an FHA mortgage. THIS IS THE NUMBER ONE REASON TO SELL SHORT AND AVOID FORECLOSURE. There is no free ride.
Not having a housing expense in the short term looks attractive but believe me, you’ll pay for it later. It’s best to sell short and move on as this seems to be the most palatable option to the financial world.
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