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October 2009 Newsletter

FORECLOSURE VERSUS SHORT SALE

What are the consequences of a "Short Sale" or a "Foreclosure" to a homeowner of Sedona AZ Real Estate? Because I recently trained and qualified as a Certified Distressed Property Expert, I think it might be helpful for you if I outlined exactly what those consequences are.

A homeowner who loses a home to foreclosure is ineligible for a Fannie-Mae backed mortgage for a period of 5 years. A homeowner who successfully negotiates a short sale can apply for one after only 2 years.

As for a future loan with a mortgage company, a prospective borrower would have to answer YES to the application's question, "Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?" This will definitely affect the rate. There is no similar question required following a short sale.

With regard to an individual's credit score, a foreclosure will likely lower it from 250 to 300 points for a period of more than 3 years. A short sale is normally marked "settled" and therefore might lower a credit score by as little as 50 points for a time frame as brief as 12 to 18 months.

A foreclosure will remain as a public record on a person's credit history for 10 years or more. A short sale, however, is not reported on a person's credit history.

Employers do have the right to reassign or terminate an employee who has undergone a foreclosure. A short sale, on the other hand, is not a challenge to employment.

A foreclosure is one of the most detrimental credit items a job applicant can give and in most cases will present a challenge to employment. A short sale is not recorded on a credit report and is therefore not likely to affect future employment.

In 100% of foreclosures, the bank has the right to pursue a deficiency judgment (except in those states where there are no deficiency judgments). In the case of a short sale it may be possible to convince the lender to renounce the right to pursue a deficiency judgment against a delinquent homeowner.

In a foreclosure, the bank may not be able to successfully sell the property at auction. That usually results in a reduced selling price and a longer period before the property is finally sold. This could possibly result in a higher deficiency judgment. In a properly managed short sale, the property is generally sold at a price that is close to market value and therefore not likely to trigger a deficiency judgment.

Everything considered, it is clearly more advantageous for a distressed homeowner to dispose of his property via a short sale rather than a foreclosure. Available homes eligible as short sales today represent about 12 percent of Sedona's active listings.

Meanwhile, if you are a potential buyer, there are plenty of excellent properties that you may want to consider. Indications are strong that we are finally at the bottom of the real estate downturn. This means that 2010 is likely be the year we see normal pricing begin to reappear in Sedona and the surrounding Verde Valley.

If you have an interest in knowing more about what is happening here in red rock country, feel free to contact me by phone or E-mail. Remember, timing is everything.

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