To do or not to do a short sale, that is the question! 

Hopefully after  reading this article you will have a better understanding of short sales and bit of direction to assist in making a responsible decision and being comfortable with it.

 Some reasons to consider a Short Sale instead of foreclosure are:

-You original purchase price was higher than the property's current worth; a result of the market decline since you purchased your home.

-You purchased with little or no money down, betting that appreciation would increase your equity.

-There was an inflated value when you refinanced.

-The loan had an artificially low beginning interest rate (otherwise called "teaser") and your lender never explained that payments could be extremely high when the loan adjusted.

-New home purchased in a subdivision never fully developed so there is no appreciation in new phases.

-Too many homes on market, all with low prices because of so many foreclosures and Short Sales. 

As always, time is of essence when you are unable to meet your obligations. If short sales are an option, be certain to get the advice of a professional Realtor, accountant, or attorney who knows about short Sales and is familiar with the mechanics and laws of your state.

When seeking out the help of a professional, you should always send a letter of authorization to the lender which authorizes him/her a your representative  who can discuss your situation on your behalf. The letter should include the date, your name and phone number, the property address,  the loan number and your agent's name and contact information. 

 LIFE AFTER FORECLOSURE

Skipping ahead a few years: After the dust has settled and you have recovered, you have  saved enough to buy another home.  How will foreclosure , short sale and deeds in lieu of come back to haunt you?

A foreclosure will remain on a person's credit report, in the public records section, for 10 years.   

Fannie Mae and Freddie Mac have hardline policy about homeowners who fall back  on their obligations to pay.  They call it "Seasoning."   A foreclosure is "seasoned" after five years and a  short sale is two years.  This means that  if you are trying to buy another house, Fannie might consider loan approve  after the "seasoning" time periods are expired.  How do these time limits correlate?  This is a trick question which you should be aware of. 

When completing your loan application,  this fact must be attested to under the Declarations, Section VIII, as follows:

·         Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years? (Y/N)

·         Have you directly or indirectly been obligated on any loan which resulted in foreclosure, transfer of title in lieu of foreclosure, or judgment? (Y/N)

How do you answer those questions?   Truthfully, because you are declaring under the penalty of perjury.  The underwriters have your credit report in front of them and all the facts are there in black and white.

Lenders look upon  a short sale  no differently  than a foreclosure or deed-in-lieu.   A lender's underwriting guidelines state that  the following items are subject to individual evaluation, no matter how high the credit score:

Bankruptcy  -  Foreclosure - Deed-in-lieu - Short sale -  Judgments Collections -

Charge-offs - Tax liens

Also, if there was aforeclosure in the past 5 years, there has to be a minimum of 3 active trade lines more than 24 months old, with no late payments and no derogatory credit after the foreclosure.

Finding a place to rent after the short sale, foreclosure or deed in lieu of, can be a challenge.  Due to the widespread credit meltdown,  most landlords would not view a foreclosures as a threat, provided  all other credit obligations a current.  A credit report loaded with negative information would not be viewed favorably.

Hopefully, this article has given the reader a little insight on the mechanics of mortgage default, whether it be short sale, foreclosure or deed in lieu of foreclosure.  it is meant to help relieve some of the stress that everyone experiences when hard times come along.  All of the information, as written, is intended to be a guide to assisting an owner in making a responsible decision.  Knowing the consequences of  taking a big hit on one's credit and how to deal with it, will also make it easier to adjust to life after the loss of a home.  Yes, there is life after a short sale, foreclosure or deed in lieu of. 

This article was written by Carla Grifasi, California state certified residential appraiser and owner , Carla Grifasi Appraisals and AskTheAppraisers.com. 

 She can be reached at carla@asktheappraisers.com. 

  For more answers, you can send your questions to questions@asktheappraisers.com