A Good Alternative to Foreclosure

By Joel Persinger
YourRealEstatetDude.com

With all the talk of increasing foreclosures, and fears of banking failures such as that which occurred with Indymac Bank and the worries surrounding the general stability of the lending market, more and more people I meet are asking probing questions about possible alternatives to foreclosure. One such alternative is the “Short Sale.”

Short sales were last used extensively during the market down-turn of the 1990s. A short sale occurs when property values have declined to the point that homeowners owe more on their properties than the properties themselves are worth. When that happens and a homeowner can no longer make the required payments, the two most common results are foreclosure or selling the home for less than what is owed on it with the permission of the lender. The latter is called a short sale.

If you are keeping your eye on the market in San Diego, you have probably noticed that a significant percentage of the homes currently for sale in the county are distress sales. Many are foreclosures, but a large number are short sales. This may be due to the fact that a short sale can do far less damage to your credit rating than simply going through a foreclosure.

According to an article published on the CBS News website in June of 2007,

“While in both cases, short sale and foreclosure, the delinquent mortgage will negatively affect (the seller’s) credit rating, at least short sellers avoid having a “debt discharged due to foreclosure” on their credit reports. Mortgage and credit experts say that, after bankruptcy, having a foreclosure on your credit report is the worst result and will reduce your credit score by over 250 points. You could also have to wait up to three years to qualify for a mortgage at a reasonable rate.

The article goes on to state that a short sale will generally be report as, “a pre-foreclosure in redemption… and can result in a credit score reduction of 100 points or less.” According to CBS News, “People who successfully complete a short sale may also qualify for a mortgage at a reasonable interest rate in as little as 18 months.”

Given the current market and the large number of distressed sellers in San Diego County, many real estate offices, including my own, have focused on helping sellers in financial distress complete short sales. This is simply because a short sale is often a far better alternative than a foreclosure. So, if you or someone you know is in financial distress and facing foreclosure, a short sale may be a better way to go. A qualified, experienced real estate professional should be able to help.