From the category archives:

Foreclosure/Bank Owned

Short sale or foreclosure?It is probably safe to assume that most consumers like to work with folks they know can be trusted. In Real Estate, like some other businesses there are those that can always be counted on for delivering great advice and others that only care about their own pocket book.

I always tell people some of the best Real Estate agents are those that don’t NEED to make a sale! It makes perfect sense because an agent that NEEDS business is far more likely to tell a buyer or seller something they want to hear rather than the truth.

Short sales unfortunately are a specialized Real Estate transaction where information is often times bandied about with no basis of fact. Many Realtors blindly go around telling people in financial distress that a short sale is better for their financial future because their credit score will not be impacted like going through a foreclosure.

Folks this could not be further from the truth! While there are certainly advantages of pursuing a short sale vs foreclosure, credit scoring is NOT one of them. There will be plenty of Realtors that will read this and argue with me telling me I am wrong.

As a Realtor who is tech savvy and social media connected you will see many of my articles in places such as Linkedin, Twitter and other Real Estate forums.

They will see some of my short sale articles and flat out tell me that I have incorrect information. When I mention the credit scoring impact of a short sale compared to a foreclosure is just about the same they scowl in disbelief. They will tell me I don’t know what I am talking about because they just learned differently at some short sale course their local Real Estate board was putting on. At this point I will be laughing because the people that teach these courses are usually Realtors that couldn’t make it in the business. They teach this nonsense because it is propaganda that helps get Realtors more business.

By now you are probably thinking how do I know the credit scoring impact is similar in these two financially stressful events. You have every right to be wondering! I know because I go right to the source. My FICO is the governing body for credit scoring including what happens in both a short sale and foreclosure.

Short sale vs foreclosure credit scoring impacts

Since I am often getting challenged on the credit scoring impacts by other Realtors and get asked all the time by my clients, I am going to share a very interesting study that was conducted by Fair Issac corporation.

The FICO study took various types of mortgage delinquencies on three credit bureau profiles of consumers that had scores of 680, 720 and 780, respectively. The study focused on consumers whose credit characteristics (e.g., utilization, delinquency history, age of file) were typical of the three score points considered. All of the consumers had an active currently-paid-as-agreed mortgage on file.

Results of this credit scoring study are shown below. The first chart shows the impact on the credit score for each stage of delinquency and the second shows how long it takes the score to fully “recover” after the fact including a short sale or foreclosure.

Credit Scoring Short Sale vs ForeclosureWhat you can easily see by this  study is that there is a negligible difference in credit scoring when comparing a foreclosure or short sale. While it seems unfair, those that had a higher credit score to start will see a greater scoring drop. In addition, the higher starting score, the longer it takes for the score to fully recover.

While there is a minimal difference in scoring impact between moderate and severe delinquencies, there may be a significant difference in time required for the score to recover completely.

These statistics are right from the guys that make credit scoring. They are not opinions. This is actual data that was put together and sourced by FICO themselves.

Benefits of a short sale vs foreclosure

So what are the benefits of going through a short sale rather than letting a lender foreclose on your property? The biggest advantage is that you will be able to buy another home in the future a lot quicker than you would with a foreclosure. Generally speaking the turnaround time for getting another loan after completing a short sale is two to three years. In a foreclosure it is typically five to seven years. There are a number of circumstances that can affect the time frame including whether the loan is FHA, Fannie Mae or Freddie Mac. For a complete financing guide see buying a home after short sale or foreclosure.

One of the other big factors you need to consider is your employment status. There are a number of large companies that will not hire a new employee that has a foreclosure on their resume. While this may not seem fair with all the financial turmoil that has taken place over the last five years, employers look at a foreclosure as a black mark on your record. In other words when you short sale a property you are owing up to a financial commitment. In a foreclosure you are walking away and taking no responsibility for your debt.

The last reason why more and more will choose a short sale over a foreclosure is just the sheer embarrassment of going through a foreclosure proceeding. In some states an auction is held right on the front lawn of the property. Who wants to lose their home and then have salt rubbed in the wound by watching a bunch of buyers compete over it. This is an unsettling experience for most.

The goal of almost anyone that goes through a short sale or foreclosure will be to improve their financial stability moving forward. Of course improving the impact a short sale or foreclosure had on their credit scores will typically be one of the first areas that people look at once they are back on their feet. There are certain things you can do to help fix your finances after a short sale or foreclosure that are covered in this helpful article.

Unfortunately, sometimes people just don’t realize they have options and just lose their home to foreclosure. Many have never taken the time to do any research and just assume there are no alternatives. A short sale can be a great alternative for some home owners – best of luck if you are one of them!

If you are need to short sale your home or condo in Ashland, Bellingham, Framingham, Franklin, Grafton, Holden, Holliston, Hopedale, Hopkinton, Medway, Mendon, Millbury, Milford, Southboro, Westboro, Natick, Northboro, Northbridge, Whitinsville, Upton, Uxbridge, Shrewsbury, Sutton, or Worcester get in touch! I would love to interview for the chance to represent your short sale transaction.

I am successfully completing short sales through out the Metrowest Massachusetts and Worcester County areas. So far, knock on wood, I have a 100% success rate for short sale approval! Short sales are difficult transactions that are critical to have the right Realtor representing you. Do not make the mistake of picking a Real Estate agent that does not have experience closing short sale transactions.

If you are outside of the Metrowest/Worcester Massachusetts area and need to do a short sale please feel free to contact me and I would be happy to refer you to a Realtor in your location that handles short sales and knows what they are doing! I have referred short sales to other Realtors all around the country.

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About the author: The above Real Estate information on Credit scoring impacts of short sale vs foreclosure was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 25+ Years.

Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!

I service the following towns in Metrowest MA: Ashland, Bellingham, Blackstone, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northboro, Northbridge, Shrewsbury, Southboro, Sutton, Wayland, Westboro, Whitinsville, Worcester, Upton and Uxbridge MA.

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Getting a mortgage after foreclosure

There are not many things that can negatively impact your credit score more than a foreclosure or short sale. In fact one of the more common untruths you will hear from many Realtors is that short sales don’t impact your credit scores like foreclosures do. This is absolutely WRONG!

If you fail to pay your mortgage during a short sale the credit score impact will be nearly identical to a foreclosure according to My FICO the governing body for credit scoring.

Being a Realtor myself for the last twenty five years it does not surprise me when I hear this misinformation being spewed in person or around the internet.  Some Real Estate agents will paint a short sale as your ticket to the promised land and a foreclosure as a ticket to financial misery for the rest of your life.

They do this of course because they want you to list the property with them as a short sale. A true Real Estate professional should be going over all possible financial options with you and not just looking to put money in their wallet.

There are of course advantages to doing a short sale but a better credit score is not one of them unless you are able to complete a short sale without missing mortgage payments. The sad truth is that most but not all of the time a lender is not going to grant short sale approval unless you are behind in your mortgage payments. From a lender’s perspective if you are able to continue paying your mortgage why should they grant you a short sale?

The advantages of a short sale vs a foreclosure center around the time you will be able to purchase a home again in the future. You will be able to buy a home after completing a short sale much quicker than a foreclosure.

For a complete breakdown of how quickly you can get financing after both of these events see getting a mortgage after short sale or foreclosure. If you can show extenuating circumstances of why you had to do a short sale or lost your home to foreclosure you may be able to get a loan sooner. Some of the acceptable hardships that could factor into a lenders decision are divorce, loss of a job and unexpected medical expenses.

Another advantage of a short sale is how future employers, as well as other types of creditors look at you in the future. Having a foreclosure on your resume is not something an employer is going to look at favorably. In a short sale you have at least attempted to live up to your debt and not just walk away.

Owning a home again after a foreclosure/short sale

Work on increasing your credit score

Fixing bad credit

One of the most important steps you can take to getting back into the home ownership arena after a foreclosure is to work on increasing your credit scores. This article provides some excellent tips on building back your credit score as quickly as possible. There is no doubt that building your credit score after a foreclosure or short sale is a difficult task. On average you can expect your score to drop between 150-200 points so you will have a lot of work to do!

Two or the most important things you can do to raise your score is to pay your bills on time and keep your credit card bills below the maximum levels.

Keep your employment stable

One of the things lenders look for with borrowers especially after a short sale or foreclosure is employment stability. Unless you have the opportunity to move into a position that offers a much higher pay you will be better off sticking with the job you have. The lender is going to want to see you are grounded with work and not changing jobs.

Rebuild your savings after foreclosure

Lenders are also going to want to see that you have squirreled away some money. Working on saving any extra money so that your nest egg is built back up becomes important. A six month reserve is a safe bet to show lenders that you have a fall back plan should you happen to become unemployed.

Owning a home again after short sale or foreclosure is certainly achievable is you work diligently towards getting your financial house in order!

Other Short sale articles worth a look:

If you are need to short sale your home or condominium in Ashland, Bellingham, Framingham, Franklin, Grafton, Holden, Holliston, Hopedale, Hopkinton, Medway, Mendon, Millbury, Milford, Southboro, Westboro, Natick, Northboro, Northbridge, Whitinsville, Upton, Uxbridge, Shrewsbury, Sutton or Worcester get in touch! I would love to interview for the chance to represent your best interests.

I am successfully completing short sales through out the Metrowest Massachusetts and Worcester County areas. So far, knock on wood, I have a 100% success rate for short sale approval! Short sales are specialized transactions that are critical to have the right Realtor representing you. Do not make the mistake of picking an agent that does not understand how to get to the closing table on a short sale.

If you are outside of the Metrowest Massachusetts area and need to do a short sale please feel free to contact me and I would be happy to refer you to a Realtor in your location that handles short sales and knows what they are doing! I have referred short sales to other Realtors all around the country.

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About the author: The above Real Estate information on Fixing your finances after foreclosure or short sale was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 25+ Years.

Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!

I service the following towns in Metrowest MA: Ashland, Bellingham, Blackstone, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northboro, Northbridge, Shrewsbury, Southboro, Sutton, Wayland, Westboro, Whitinsville, Worcester, Upton and Uxbridge MA.

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Buying another home after short saleAs a Realtor who has been heavily involved closing Massachusetts short sales over the last five years, one of the questions that I get asked quite often from home sellers is how long will it take before I will be able to buy a home again.

The answer to this question does not have any clear cut and dry answer. There are quite a few variables involved when trying to figure out when someone will be able to purchase a home after a foreclosure or short sale.

Going through either a short sale or a foreclosure has the potential to seriously impact ones credit.  Government entities Fannie Mae, Freddie Mac and FHA do not directly loan money to individuals but are the governing body that work with lenders to guarantee loans and free up money to provide mortgages.

Banks typically have the authority to lend to whoever they want but will generally follow the guidelines set forth by these entities. There are some lenders of course that will take greater risks with some borrowers than others.

Below are the general guidelines that FHA, Fannie Mae and Freddie Mac follow when considering a loan after a short sale or foreclosure:

Short sale with FHA Loan

  • Can purchase right away with no mortgage default
  • 3 year wait if in default at the closing
  • Reduced wait if the borrower has re-established good credit and can show extenuating circumstances

Short Sale With Fannie Mae Loan

  • 2 year wait if the borrower puts 20 % down
  • 4 year wait if the borrower puts between 10% to 20% down
  • 7 year wait if the borrower puts less than 10% down
  • 2 year wait if the borrower can show extenuating circumstances and puts more than 10% down

Short Sale with Freddie Mac Loan

  • 4 year wait before being able to get a loan
  • 2 year wait if the borrower can show extenuating circumstances

Foreclosure with an FHA Loan

  • 3 year wait before being able to get a loan
  • Reduced wait if the borrower can show extenuating circumstances and re-establishes good credit

Foreclosure with a Fannie Mae Loan

  • 7 year wait from the completed foreclosure sale date
  • 3 year wait if the borrower can show extenuating circumstances. Additional underwriting requirements apply for 4 years after a 3 year waiting period.
  • 7 year wait for a 2nd home, cash out re-financing, or an investment property

Foreclosure with a Freddie Mac Loan

  • 5 year wait from the completed foreclosure sale date
  • 3 year wait if the borrower can show extenuating circumstances

** As a side note a deed in lieu of foreclosure follows the same guidelines as FHA’s foreclosure policy, the same as Fannie Mae and Freddie Macs short sale policy.

When analyzing the difference between completing a short sale or going through a foreclosure in regards to purchasing another property in the future it boils down to the waiting time which is more favorable in a short sale.

Credit Scoring After Short Sale and Foreclosure

Credit Score After a Short SaleThe other question that I get from folks considering a short sale is how it will impact their credit. There is a lot of misleading information that come from Realtors, as well as online forums about the impact on credit scores. On many occasions you will hear that a short sale is far better for your credit than getting foreclosed on. This is incorrect! A credit score in a short sale or a foreclosure have the potential to be about the same. Maybe marginally better in a short sale.

According to Fair Issac (My FICO) a company that provides analytic, decision making, and credit scoring services for financial service companies a credit score will go down by 40 to 110 points after being 30 days late.  Further, the scoring drop will increase to 70 to 135 points after 90 days late on a mortgage payment.

The average scoring drop in a short sale, foreclosure or deed in lieu is 85 to 160 points. You need to keep in mind that in both short sales and foreclosure it is possible that the credit score drop could be closer to 200-300 points.

Credit scoring factors vary from individual to individual. The scoring change is heavily dependent on where the credit score was before the negative event took place. Both a short sale and foreclosure are considered a loan that was not paid as agreed.

What happens to your credit score in each of these events could be different than someone else who goes through the same financial event. Unfortunately, most of the time the higher the credit score the greater the decrease from where you started.

When trying to decide whether a short sale is right for you don’t be fooled into making the decision under false hopes that your credit will not be impacted all that much. The biggest advantage in a short sale is the shortened time frame in which you will be able to purchase a home in the future.

One of the most important steps after going through either a short sale or foreclosure is to be conscious about trying to improve your credit standing. Here are some excellent tips on how to increase a credit score.

*** The above information for waiting periods before buying a home after completing a short sale and foreclosure was sourced by the Fannie Mae and Freddie Mac selling guides along with the FHA handbook.

Other short sale articles worth a peek:

If you are need to short sale your home or condo in Ashland, Bellingham, Framingham, Franklin, Grafton, Holden, Holliston, Hopedale, Hopkinton, Medway, Mendon, Millbury, Milford, Southboro, Westboro, Natick, Northboro, Northbridge, Whitinsville, Upton, Uxbridge, Shrewsbury, or Worcester get in touch! I would love to interview for the chance to represent your best interests.

I am successfully completing short sales through out the Metrowest Massachusetts and Worcester County areas. So far, knock on wood, I have a 100% success rate for short sale approval! Short sales are specialized transactions that are critical to have the right Realtor representing you. Do not make the mistake of picking an agent that does not understand how to get to the closing table on a short sale.

If you are outside of the Metrowest Massachusetts area and need to do a short sale please feel free to contact me and I would be happy to refer you to a Realtor in your location that handles short sales and knows what they are doing! I have referred short sales to other Realtors all around the country.

_________________________________________________________________

About the author: The above Real Estate information on buying a home after short sale or foreclosure was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 25+ Years.

Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!

I service the following towns in Metrowest MA: Ashland, Bellingham, Blackstone, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northboro, Northbridge, Shrewsbury, Southboro, Sutton, Wayland, Westboro, Whitinsville, Worcester, Upton and Uxbridge MA.

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Why would a lender foreclosure instead of approving a short sale?

Lender choosing to foreclose v.s short sale

As a Massachusetts Realtor who deals with short sale transactions on a daily basis, I have seen and learned quite a bit since I started getting involved with these types of transactions four years ago.

One thing that I am extremely proud of is the fact that every short sale that I have listed has received short sale approval from the lender. This is no small feat, as nationally the success rate for completing a successful short sale in less than 30%.

I certainly can not take all the credit as the attorney I work with does all of the grunt work with the lender. The short sale law firm I use does outstanding work. My job in a short sale is the same as with any home I am marketing….get it SOLD! This means finding a buyer who will pay something in the ball park of market value and be willing to wait the time it takes to get short sale approval which is typically longer than a regular transaction.

Of course part of getting a short sale to the closing table is knowing how to follow proper procedures. The are plenty of Realtors getting involved with short sales who are completely clueless but see it as a money making opportunity and are willing to put a seller’s financial future at risk for their own potential gain.

Here are a few mistakes that I see repeated over and over again by Real Estate agents that don’t know any better:

  • Realtors® submitting multiple unsigned offers to the lender.
  • Realtors® submitting low ball offers to the lender.
  • Realtors® allowing home inspection contingencies after short sale approval.
  • Realtors® allowing an investor to negotiate the short sale.

For a complete explanation of each of these issues and why you don’t want any of them to happen to you see short sale lawsuits against Realtors.

Then again there are some Realtors who do in fact understand the short sale game and how to successfully navigate the waters. Short sales that have more than one lien holder tend to be slightly more difficult to get done than ones where there is only one lender involved. When there are multiple lenders involved you need approval from both in order for the sale to take place.

While I have yet to have this happen (knock on wood) I know of other Realtors who seemingly have had a situation where a 2nd lien holder has chosen to foreclose instead of granting short sale approval.

The scenario goes like this…. a home is on the market for $300,000 and is being marketed as a short sale. There is a 1st mortgage on the property for $310,000 and a 2nd mortgage for $50,000.  The seller has lost his job and can no longer afford to pay the mortgage so he chooses to short sell his property.

A buyer comes along and makes an offer for $290,000 which is accepted by the seller and sent to the 1st and 2nd lien holders. After a period of time the 1st lien holder orders an appraisal to verify market value and after doing their due diligence determines that $290,000 is well within the acceptable limits of market value. During the negotiation process the 2nd lien holder is offered $5000 in order to approve the short sale and allow the sale to take place.

Short sale denied by lender

The lender digs in their heals and says NO. They will not accept the short sale payoff of $5000. The Realtor involved says why not? They go on to argue with the lender that if you allow this to go to foreclosure you will get NOTHING as the home is worth far less than the $360,000 mortgage balance.

The lender does not bend and says we don’t care we are going to foreclose. Folks this is a real world scenario that happens everyday in the world of short sales.

What remains to be seen is whether or not the lender is going to get nothing. The answer is probably NO. More than likely one of the following scenarios will have taken place:

  • The 2nd lien holder has a loss sharing arrangement with the FDIC that will allow them to collect substantially more than the amount offered by the first lien holder under the short sale scenario.
  • Unbeknown to the homeowner, the second lien holder has bought insurance against the default. The lender will now collect on that insurance. Depending on the terms, this may not have been possible if they agreed to a short sale.
  • The homeowner’s loan with the lender was full recourse and they intend to pursue him for the deficiency and/or sell that right to a collection agency.
  • There are tax advantages to the lender that far outweigh the offer of $5000 that they received from the 1st lien holder.
  • Any or all of the above!

The above situation is why it is imperative to have a great short sale negotiator on your side. Of course there are times that it will be impossible to make the deal work but in many cases the skill of the negotiator can find a middle ground with the 2nd lien holder.

Click on the links below to see other important information related to completing a Massachusetts Short Sale:

If you are need to short sale your home or condo in Ashland, Bellingham, Framingham, Franklin, Grafton, Holliston, Hopedale, Hopkinton, Medway, Mendon, Milford, Southboro, Westboro, Natick, Northboro, Northbridge, Whitinsville, Upton, Uxbridge, Shrewsbury, Worcester, or Douglas Get in touch! I would love to interview for the chance to represent your best interests.

I am successfully completing short sales through out the Metrowest Massachusetts and Worcester County areas. So far, knock on wood, I have a 100% success rate for short sale approval!

If you are outside of the Metrowest Massachusetts area and need to do a short sale please feel free to contact me and I would be happy to refer you to a Realtor in your location that handles short sales and knows what they are doing! I have referred short sales to other Realtors all around the country.

_________________________________________________________________

About the author: The above Real Estate information on Lenders choosing foreclosure over short sale approval was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 24+ Years.

Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!

I service the following towns in Metrowest MA: Ashland, Bellingham, Blackstone, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northboro, Northbridge, Shrewsbury, Southboro, Sutton, Wayland, Westboro, Whitinsville, Worcester, Upton and Uxbridge MA.

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Stopping a Foreclosure Via a Short Sale

October 7, 2010

Avoiding a Massachusetts Foreclosure Foreclosure is something that most people want to avoid at all costs. Nobody sets out to own a home and then see it taken back by the lender. Across the country this has become a common theme as ten’s of thousands of people are losing their homes due to an economy […]

4 comments Read the full article →

Buying a Massachusetts Foreclosure Property

July 20, 2010

Are you considering buying a Massachusetts foreclosure property?   Investors that have a long term perspective of the Real Estate market understand that purchasing a bank foreclosure can be an excellent financial proposition. In the Metrowest Massachusetts area there are plenty of them around and they can typically be bought at a discount to the present […]

6 comments Read the full article →

Fannie Mae Strikes Against Strategic Defaults

June 25, 2010

You may have heard or read recently about strategic defaults as this topic is all over the news. A strategic default is when a home owner walks away from their mortgage when they are still able to make the payments. The reason why a home owner would consider a strategic default and just walk away […]

25 comments Read the full article →

Buying a Massachusetts Bank Owned Home

March 18, 2010

There are a few different ways in which a buyer of Real Estate could obtain ownership of a foreclosure. Here is a quick summary of the three possible scenarios: A pre-foreclosure where you are able to buy directly from the home owner before the bank takes over. This is commonly referred to as a short […]

10 comments Read the full article →