A short sale is often recommended as a way to avoid foreclosure. But how exactly do short sales and foreclosures compare with regards to advantages and disadvantages?
A foreclosure may prove to be embarrassing to the homeowner and his credit score will take a beating but there are also some advantages. These include the fact that the foreclosure proceeding requires several months to complete and in the meantime, the homeowner can stay in the property without making any mortgage payments. There will also be no potential buyers disturbing your daily routine and the property is still yours until the foreclosure has been finalized. There is also the possibility of the lender providing the borrower some money in exchange for leaving the property peacefully.
With regards to disadvantages, a foreclosure causes the credit score to drop substantially and the lender may post an embarrassing notice on the front door. The borrower will also be unable to get a mortgage loan for seven years.
As for the advantages of a short sale, these include the avoidance of the embarrassment of foreclosure and there may also be no mortgage payments to make. The borrower may also be able to get a new mortgage loan within two years.
The disadvantages of a short sale include the need to accommodate potential buyers, the absence of an assurance that the lender will agree to it, and the fact that the negative remarks on the credit report may remain there for seven years. The lender may also want to examine the borrower’s bank accounts, tax returns, and assets and liabilities, aside from requiring a hardship letter.
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It looks like the market is going lower. So much for the new homebuyer tax credits. If the gov’t thinks it can address the issue then they should try to keep people in their homes rather just offer credits. I guess we’ll see.