Know Your Options:
Short Sale vs. Foreclosure in Minnesota
A foreclosure will negatively affect your credit score significantly. Not only will this drastically drop the score, but it will prevent you from obtaining any type of financing for 7-10 years. Even after this period, when you file a mortgage loan application, you will always need to state that you had a foreclosure in the past. This can seriously affect your ability to obtain financing and credit in the future-especially credit with good rates.
A short sale will affect your credit score as well, but not nearly as significantly as a foreclosure. Your credit will be negatively affected for approximately 24 months depending on what other situations you have going on in your life. By Fannie Mae Guidelines, you should be able to purchase another home after 24 months of completing a short sale.
With a foreclosure, a public notice is filed and privacy is not maintained. The short sale process ensures that you, as a seller could maintain your privacy.
With a foreclosure, a lender can assign a judgment against the homeowner and garnish remaining assets such as bank accounts, income, etc. With a short sale, we can take steps to entice the lender to let you walk away without a deficiency judgment against you.
Advantages of a Short Sale:
- Borrower benefits
- Avoid a lengthy and stressful foreclosure process
- Provides seller with some control
- Short payoff can help preserve neighborhood market values and reputation
- Future borrower benefits
- Based on Fannie Mae Guidelines you, the seller can apply for a mortgage within 2 years vs. 5-7 years with a foreclosure
- Avoid the stigma of a foreclosure
- You can move forward with your lives
As with any process there are also some disadvantages and they could be:
- Potential tax liability--makes sure you check with a good CPA
- You, as the seller, may be asked to sign a promissory note or contribute to the loss
- The short sale process is time-consuming
- There is a high volume of short sales in this market
- Lenders have had to take many steps to meet the demand of short sales