Short Sale and Foreclosure: Spelling the Big Difference
Sometimes, no matter how careful we are with our money and expenses, certain things happen in life that are beyond our control. Dramatic financial fall backs caused by a disaster, a serious illness, an unexpected death, or even divorce, can force one to stop paying his/her home’s mortgage. When this happens, the property is foreclosed. Foreclosure is emotionally stressful for a lot of people because it forces them out of their home, embarrasses them, destroys their credit scores for a long period of time, and costs them even more money.
A closer look at foreclosure
Foreclosure is probably the worst thing that can happen to anyone because it can damage one’s credit score for about seven years or more. If this happens to you, you won’t be able to ask for loans for anything, even your grocery shopping, and you’ll be stuck with high interest credit accounts if any bank lets you have a loan at all. Aside from the credit damage, a foreclosure will also cost your lender money, and this amount will be charged to you on top of your current debt. There is also the embarrassment of being forcibly evicted from your home. Once your home is foreclosed, it will be auctioned off by the bank which means you have no control over who buys your home from your lender. You’re taken completely out of the picture.
A better option: short sale
Thankfully, foreclosure is not your only option. You can also offer a real estate short sale. Of course, this is not a complete win-win situation, but it is an improvement compared to what you’ll be facing should your home be foreclosed. A short sale happens when the debtor (you) sells your home to the lender for an amount that is smaller than the one you owe. Of course in most cases, this
means that you’ll be selling your property for less than what it’s worth.
However, a short sale is much more dignified compared to a foreclosure. You won’t be evicted right away, and you can even choose the dates when you’ll be willing to received people who will be looking at your home. While there is still a significant damage to your credit when you agree to a short sale, this damage is miniscule compared to how much damage a foreclosure would cause. People say the credit damage of a short sale could easily be repaired within a year or two. This will make it easier for you to live a decent life after your financial downfall, and still be able to pay your remaining debts
Some small disadvantages
When you choose to have a short sale, the IRS will send you a form 1099 wherein the remaining balance you haven’t paid your lender yet will be considered taxable income. However, if your home has been mortgaged after January 1, 2008, you’re already protected from this tax based on the Mortgage Foregiveness Act of 2007
Any other options
There are other options offered to people who are in financial trouble. Foreclosure and short sale are just two of them. Whatever you do, do not choose a foreclosure because this will make things really difficult for you. You should also not wait until the last minute because you might not qualify for any other option aside from a foreclosure if you wait too long.
Depending on your situation you should take the time to understand the process of a short sale so you can decide what is the best option for you.