Kelly Swinney, A California Home, Inc.
Cell: 760.224.1102   EFax: 877.803.2755
Short Sales

Great news for California homeowners considering short sales:

California Senate Bill 458 was signed into law on Friday July 15, 2011. This law disallows both first and secondary lienholders from pursuing deficiency judgment against sellers in a completed short sale; previously only first lienholders were barred. According to Beth L. Peerce, the President of the California Association of Realtors, "SB 458 brings closure and certainty to the short sale process and ensures that once a lender has agreed to accept a short sale payment on a property, all lien holders – those in first position and in junior positions – will consider the outstanding balance as paid in full and the homeowner will not be held responsible for any additional payments on the property."

A short sale occurs when a lender agrees to accept less than the amount owed on a home.  In order to qualify for a short sale a homeowner must demonstrate a hardship and owe more on their mortgage than the current value of the home.

Hardships can include but are not limited to:

  • Divorce
  • Loss of employment
  • Reduced Income
  • Medical/Health Reasons
  • Death

Contrary to popular belief you do not have to be behind on your mortgage payments to qualify and be approved for a short sale

Pros:

  •  In a well negotiated short sale the seller is not responsible for the unpaid balance of the mortgage
  • May be possible to immediately purchase another home (must not be delinquent on payments)
  •  In nearly all cases a short sale is better than foreclosure

Cons:

  •  Take more time to complete than a standard sale

If you owe more than your house is currently worth a short sale may be your best option.

Short Sale versus Foreclosure

Simply walking away from your house, leaving your mortgage unpaid, may seem easy; a homeowner may even be able to live in their home for months without making payments before their lender enforces foreclosure proceedings. But the simplicity ends there.  Do not forget that having a foreclosure on your record is very damaging for each of the 10 or more years it remains on your credit report. A foreclosure will affect  a person’s ability to obtain loans and leases, and can also affect their employment—current and future!

 

 

Short Sale

Foreclosure

Credit Score

Score may be affected by as little 50 points[i], and a short sale may affect credit for as little as 18 months.

Score may be lowered from 250 to over 300 points and will usually affect the credit score for more than 3 years.

Credit History

There is no reporting term for “short sale” so they are generally reported as “settled” or “paid in full.”

Foreclosure will remain on a person’s credit report for a minimum of 10 years.

Ability to Obtain Loans in the Future 

A homeowner current on their payments can obtain a new loan immediately. Those not current on payments are qualified for a Fannie Mae backed mortgage in 2 years.

After foreclosure, a homeowner is disallowed from a Fannie Mae backed mortgage for 5 years,[ii] and will have interest rates affected for 7 years.[iii]

Deficiency Judgment

In California, when a short sale is completed both primary and junior lien holders are legally barred from pursuing a deficiency judgment against the seller.

Although California is a one-action state, if the foreclosed upon loan was not used to purchase the home and/or there are junior liens, lenders have the right to pursue a deficiency judgment.

Current and Future Employment

There is not a reporting term for “short sale,” therefore it cannot be reported on a credit history and cannot be used to challenge employment.[iv]

Some employers require that their employees have good credit ratings which means foreclosure can result in termination. Employers may also choose not to hire a candidate with a foreclosure.



[i] If the homeowner is current on their mortgage payments; however, credit will be seriously affected once a homeowner is 60 days late or more.

[ii] An investor is barred for 7 years.

[iii] Question C in Section VIII of the standard 1003 form asks: “Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?”

[iv] A person’s FICO score can affect employment regardless of a short sale not being reported on a credit history.

 

 




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Coldwell Banker Residential Brokerage
40 Main St., Ste. E-100 • Vista, CA 92083
Cell: 760.224.1102 • EFax: 877.803.2755
Office: 760.941.6888 x 5096
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