Tampa Real Estate: Foreclosure Vs Short Sale

Many people find themselves confused what exactly the difference is between a short sale and foreclosure. Short sales can be a used a tool to limit the credit impact and avoid foreclosure. There are some very distinct differences between a foreclosures and short sales, which this article looks to clear up.

A property is foreclosed when a homeowner is no longer able to make their mortgage payments. The lender assumes ownership of the property and the homeowner must vacatethe property. The property is then sold by the lender or auctioned at a trustee sale. This will drastically affect the homeowner’s credit rating, usually between 200 to -400 points on their credit score and will remain on their credit report for 7 to-10 years. Accordingly, this affectsfuture property buying capabilities. It will take5 years to purchase property with restrictions, and 7 years without restrictions. There are many ways to avoid foreclosure, but this typically occurs when a homeowner has no other options and is struggling financially.

A short sale is the best option to avoid foreclosure, and minimize financial damage. Homeowners can utilize this option to discard their current unaffordable mortgage based on existing financial hardships. In most cases, the homeowner will be able to avoid a deficiency judgment and will not have to pay taxes on the forgiven debt. In order for to qualify for a short sale, homeowners must be able to show some type of financial hardship.,For instance, monthly budgets where monthly expenses are greater than your income, and prove that total monthly debts are greater than your assets are indicative of financial hardship. The government has begun offering $1,000 to $3,000 as cash incentives to sellers at the completion of the transaction. In most cases, homeowners will receive a new mortgage about 24 months after a short salein comparison to the 5 to 10 years it may take after a foreclosure.