by Atlanta Short Sale Agent on March 10, 2010
You probably know by now that completing a short sale is much, much better then giving up and quitting and letting the bank take the home via foreclosure. You probably also know that although, much better than a foreclosure, the short sale will affect your credit.
What you probably don’t know is that in most cases a deed-in-lieu of foreclosure and a loan modification will as well.
Your loan modification (depending on the type) is essentially a settlement or restructuring of debt. Ever see those debt consolidator commercials that say, “no bankruptcy needed?” Just like a loan modification (which you can do yourself) you could do this with your creditors as well, as in you could negotiate a lower payoff or better terms with your creditors.
The catch is that there’s usually some damage to your credit involved. This information comes straight from Wells Fargo, who told a client the other day that this modification would be recorded and adversely affect their credit.
The same can be said of a deed-in-lieu where you are basically settling or agreeing NOT to pay the debt.
To understand why this happens you have to refer over to the pie chart and see how it “hits” your credit.
See the largest part of the pie? 35% to payments? Keep in mind that 99.9% of the time you will not qualify for any of these things without missing a payment, so that’s damage number 1.
The second part of this is settling which is like missing one big payment or all of the remainder payments. It’s kind of like dropping an atom bomb on your credit. Depending on how this is recorded it could very well stay on your credit for 5 years or more.
Finally, there’s the issue of forgiveness of the debt in the case of the deed-in-lieu that could result in a collections account being opened.
We understand that everything is going crazy right now, but if you keep your wits about you, you can often avoid some damaging things and come out better in the end.
by Atlanta Short Sale Agent on January 28, 2010
According to business week, this is a common practice, one that makes it scary to even think about a deed in lieu or a foreclosure.
Deficiency judgments were rare in the 15 years since the last real estate slump, said Ben Hillard, a former investment banker who now is a real estate and corporate attorney at Hillard & Rogers in Largo, Florida.
“The banks have been too underwater with foreclosures to spend much time on deficiency judgments, but that’s beginning to change,” Hillard said in an interview. “This is going to be the next big crisis.”
The key (which is alluded to in the article) is to know your options and have a specialist help.
- Make sure the wording is correct and forgives you of the debt.
- Be happy if you get the 1099, that means the bank has “written off” your debt – in exchange of proper wording.
- Know your state laws – Georgia gives 30 days for banks to pursue a deficiency judgment.
- Know what type of loan you have on the home. Home Equity “LINES” are different than “LOANS” and are treated differently
- Know your situation – are you really in a great situation but carrying the mortgage note on this home is a drag? You could be a target as this next quote suggest.
The likeliest candidates for deficiency judgments are so- called rational defaults, said Larry Tolchinsky, a real estate attorney in Hallandale Beach, Florida. In those cases, people who are current on their mortgages decide to walk away from a property because its value has sunk so far below their loan balance they have no hope of recouping the loss.
About 21 percent of American homeowners owe more on their mortgages than their properties are worth, according to Zillow.com, a Seattle-based real estate data firm.
“Walking away from a property comes with a cost, especially for people who otherwise have good credit,” Tolchinsky said in an interview. “The bank is going to pull your credit report, and if you’re current on your other bills they are going to come after you and potentially ruin you.”
If you want to explore your options, feel free to contact us. A short sale at least keeps you in charge as much as possible. A foreclosure is the bank “TAKING” the home and a deed-in-lieu is basically giving up, if there’s no negotiation for forgiveness.
