Many homeowners will make every attempt to keep their home, once faced with financial difficulties. Borrowing from friends or family members; draining their savings; draining their retirement or children's college fund; long, tedious loan modification process, etc.
It's when the resources are all gone and they realize a loan modification is not going to happen, that homeowners face the decision to short sale or just let it foreclose.
Before you decide, there are several factors to keep in mind.
- Social Stigma - In a short sale, you are in control of the sale. You still get to decide which offer to accept and send to the bank. Your experienced agent is sensitive to the matter and will not put up a sign in your yard that reads "SHORT SALE" for all the neighbors to see. But the bank will have no problem at all posting "FORECLOSURE" if you walk away.
- Buying Again - Your dream is not over. Many homeowners who successfully short sale can buy in as little as 2-3 years down the road. For foreclosure, you're looking at 5-7 years!
- Credit - The late payments are going to be a big ding to your credit but did you know that some prospective employers will run a credit check and turn you away if he/she sees a foreclosure? The credit reporting on a short sale varies, but generally states, "Paid in full for less than balance owed" or it may say it's charged off.
- Incentive Programs - Since many banks are no longer participating in the government's Home Affordable Foreclosure Alternatives (HAFA) Program, some have come up with their own versions, offering homeowners relocation assistance. Before walking away, see what your bank has to offer.
- Deficiency - Whether you short sale or walk away and let it foreclose, the bank will issue you a 1099C for the deficiency. In a short sale, the deficiency will equal the remaining balance due under the mortgage note, after subtracting the amount of cash proceeds the bank receives from the closing of the sale. The Mortgage Forgiveness Debt Relief Act was recently extended to December 2013 and your CPA or tax professional will be able to determine if you are eligible.
Julie Larson
Realtor Utah
801-755-8899
