BENEFITS SHORT SALE VS FORECLOSURE

BENEFITS SHORT SALE VS FORECLOSURE

Benefits Short Sale vs Foreclosure & Advantages of Short Sale vs a. Foreclosure / Fannie Maw Waiting Period Table.

ISSUE	FORECLOSURE	SUCCESSFUL SHORT SALE
Future Fannie Mae Loan (Primary Residence)'	A homeowner who loses a home to foreclosure is ineligible for a Fannie Mae-backed mortgage for a period up to 7 years with some exceptions based on extenuating circumstances. See: efanniemae.com	A homeowner who successfully negotiates and closes a short sale will be eligible for a Fannie Mae-backed mortgage within 2 years (see page 2 for LTV ratios).
Future Fannie Moe Loan (Non Primary)2	An investor who loses a home to foreclosure is ineligible for a Fannie Mae backed mortgage for a period up to 7 years with some exceptions based on extenuating circumstances. See: efanniemae.com	An investor who successfully negotiates and closes a short sale will be eligible for a Fannie Mae-backed investment mortgage within 2 years (see page two for LTV ratios).
Future Loan with any Mortgage Company	On any future 1003 application, a prospective borrower will have to answer YES to question C in Section VIII of the standard 1003 that asks "Have you had properly foreclosed upon or given Vie or deed-in-lieu thereof in the last 7 years?" This will affect future rates.	There is no similar declaration or question regarding a shod sale. . FHA - If current at the close of short sale, a homeowner may apply for an FHA loan immediately. If homeowner is late before close of short sale closing, will be eligible for FHA loan after 3 ye-ars.3
Credit Score	Score may be lowered anywhere from 250 to over 300 points. Typically will affect score for over 3 years.	Only late payments on mortgage will show, and after sale, mortgage is normally reported as "paid as agreed," "paid as negotiated," or "settled," This can lower the score as little as 50 points if all other payments are being made. A short sale's effect can be as brief as 12 to 18 months.
Credit History	Foreclosure will remain as a public record on a person's credit history for 7 years or more.	A short sale is not reported on a persons credit history. There is no specific reporting item for "short sale." in most cases a loan is typically reported "paid in full, settled" or "paid as negotiated,"
Security Clearances	Foreclosure is the most challenging issue against a security clearance outside of a conviction of a serious misdemeanor or felony, it a client has a foreclosure and is a police or security officer, in the military, in the CIA, or any other position that requires a security clearance in almost all cases clearance will be revoked and position will be terminated,	On its own, a shod sale does not challenge most security cle.arances.4
Current Employment	Employers have the right and are actively checking the credit regularly of all employees who are in sanative positions. A foreclosure in many cases is ground for immediate reassignment or termination.	A short sale is not reported on a credit report and is therefore not a challenge to employments
Future Employment	Many employers are requiring credit checks on all job applicants. A foreclosure is one of the most detrimental credit items an applicant can have and in most cases will challenge employment.	A short sale is not reported on a credit report and is therefore not a challenge to employment'
Deficiency Judgment	In 100% of foreclosures (except in those states where there is no deficiency) the bank has the right to pursue a deficiency judgment.	In some successful shod sales it is possible to convince the lender to give up the right to pursuit a deficiency judgment against the homeowner.
Deficiency Judgment (amount)	In a foreclosure the home will have to go through an REO process if it does not sell at auction. In most cases this will result in a lower sales price and longer time to sale in a declining market. This will result in a higher possible deficiency judgment,	In a properly managed short sale the home is sold at a price that should be close to market value and in almost all cases will be better than an REO sale resulting in a lower deficiency.

Advantages of Short Sale Vs a Foreclosure Fennie Mae Waiting Period Table

Derogatory Event	Fannie Maw Waiting Period Requirements	Waiting Period with Extenuating Circumstances
Foreclosure	7 Years	3 Years Additional requirements after 3 years up to 7 years 90% maximum LTV ratios Purchase, principal residence
Short Sale	2 Years - 80% maximum LTV ratios 4 Years - 90% maximum LTV ratios 7 Years - LTV ratios per the Lender Eligibility Matrix.	2 Years - 90% maximum LTV ratios

Reason for Why a Lender Would Accept a Short Sale 

One of the most common misconceptions that homeowners and agents have is that their lender is lying in wait, ready to jump out and take their house. Nothing could be further from the truth. The reality is lenders and financial institutions are in the finance business, not the real estate bui siness. They do not want your client's' property. In fact, a foreclosure has far reaching financial and regulatory cOnsequences of which most people are not aware.

The True Cost of a Forecl sure

The easiest way to demonstrate why a bank will negotiate a short sale is to break down the actual costs of a foreclosure on a hypothetical property.

For this example, let's assume we have a property with a market value of $200,000 and the oWner owes the bank $250,000. However, the highest offer the agent has submitted  to the bank is $180,000. The bank would be crazy to accept it, right? Maybe not. Let's go through the numbers.

      Short Sale
       The bank accepts te hypothetical contract above:

Market Value:	$200,000
Loan Amount:	$225,000
Sale Price:	$190,000
Closing Costs(2.25%):	$5,740
Commissions (6%):	$11,400
Proceeds from Sale:	$172,900

Loan Amount:	$225,000
Less Proceeds:	$172,900
Lender Loss:	$52,100
Loss Percentage:	23.16%

      Foreclosure
       The bank takes over the property to sell at full market value and is able to find a buyer. and close within six months.

Market value:	$200,000
Loan amount:	$225,000
Sale price:	$175,000
Legal fees:	-7,000
Taxes:	-$500
Insurance:	-$1,000
6 months utilities:	-$600
6 months maintenance:	-$600
6 months interest loss:	-$6,650
Association dues:	-$1,200
Closing costs (2.25°M):	-$3,937
Staffing costs:	-$2,000
Commissions (6%):	-$10,500
Proceeds from sale:	$141,013

Loan Amount:	$225,000
Less Proceeds:	-$141,013
Lender Loss:	$83,987
Loss Percentage:	37.33%

As you can see, the bank is actually better off with a below-market-value offer even if they are able to sell a property in six montas for full-market-value. The financial situation could be many times worse for the bank if tat property declines in value, or needs repairs, if a tenant needs to be evicted, or any number of other issues that 'nay arise. A short sale is a sure thing, and the lender avoids the liability. Of course, these are estimates provided to give you a representation of the real risk of a foreclosure to a lender and the benefits of a short sale.

As mentioned, banks are in the business of lending cash and Their income is generated from interest earned from short and long term trades of cash. When a bank forecloses and takes on yet another R_EO, their balance sheet shows additional assets. Per Federal Reserve Tier 1 capital requirements, these assets must be offset by an equal to or larger percentage of cash in the reserve. For detailed information, visit see the Bank Holding Company Act.' Banks that do not meet the requirement are subject to closure.