Let’s face it, there were a lot of duplexes sold during the real estate boom.
Today, most of those properties aren’t worth anywhere near the prices they sold for.
And many of the owner occupants and investors who bought them have fallen behind on their payments, finding themselves facing foreclosure.
Some owners resign themselves to the inevitable, vowing to hang on to the duplex until the bank changes the locks.
Doing so will destroy their credit for years and, in some cases, may even endanger their careers.
And while a short sale can be a drawn out, exhausting process, it doesn’t have nearly the long term ramifications that a foreclosure does.
If you’re behind on your mortgage and haven’t been able to obtain a loan modification from your lender, here are 8 reasons a short sale may be a better decision for you than a foreclosure:
- Credit Score – A foreclosure may reduce your credit score as much as 250 to 300 points for over 3 years. In a short sale, only your late payments on a mortgage will appear on your credit report. Once the property is sold, it will be reported as “paid as agreed” or “settled”. This may impact your credit score as little as 50 points, and appear on your credit report for 18 months or less.
- Credit History- a foreclosure will remain on your credit report for 10 years or more. There isn’t a specific reporting item for “short sale”. In fact, in most cases, the loan is usually reported as “paid in full”.
- Future Primary Residence Loan – If you live in your duplex and lose it to foreclosure, you will not be able to get a Fannie Mae backed mortgage (which is most of them) for 5 years. If you successfully sell via a short sale, that waiting period is shortened to 2 years.
- Future Fannie Mae Loan for An Investment Property – an investor who loses a duplex to foreclosure will not be elligible to obtain a Fannie Mae backed investment mortgage for 7 years. An investor who successfully sells a duplex via a short sale may get a Fannie Mae backed loan after just 2 years.
- Future Loan With Mortgage Company – On any future loan application, a prospective borrower will have to answer “yes” to the question whether he or she has had a property foreclosed upon in the last 7 years. There are no questions on loan applications regarding short sales. If a owner occupant duplex owner is current before executing a short sale, she may apply for an FHA loan immediately. If she’s late with payments, she won’t be eligible for 3 years.
- Security Clearance – A foreclosure may result in security clearance revocation and, ultimately, loss of employment for members of the military, police officers, or any career that requires security clearance. A short sale, on the other hand, does not impact most security clearances, as they are not explicitly reported on a credit report.
- Current Employment – Many employers have the right to regularly check credit. A foreclosure may result in termination or reassignment. As short sales do not appear on a credit report, they do not impact employment in the same way.
- Future Employment – For the same reasons that affect current employment, future job opportunities may be lost as a result of foreclosure.