Since the real estate bubble popped, many residents of Miami-Dade county may have been faced with foreclosure or a short sale and may wonder about the differences between the two. Both transactions can negatively impact the homeowner’s credit. Unfortunately, in recent years, it has been discovered that many short sales are being listed as foreclosures on credit reports, which can delay their economic recovery.
A short sale occurs when a homeowner who has negative equity finds a buyer to purchase the house for the current market value. The difference between the sales price and the amount owed on the loan is then usually forgiven. The bank works with the borrower and the seller and is an active participant in the process. A short sale requires bank approval before it can be completed. In a foreclosure, banks and homeowners do not work together. Homeowners sometimes cause damage to the property, and banks have additional fees and costs associated with repairs and other various expenses. The lender often loses more money in a foreclosure and the process takes longer.
A homeowner who does a short sale ordinarily would be eligible to buy a new home within a year or two. However, when a credit report shows foreclosure, that can delay the process significantly. The problem is, the credit reporting system does not have a code that distinguishes short sales from foreclosures. If borrowers cannot buy new homes, that can slow the economic recovery process.
Persons who are contemplating a short sale may benefit from a local attorney who can help ease the process. An attorney may be able to negotiate with both the bank and the buyer, and ensures that there is someone involved who is looking out for the seller’s best interests.
Source: Washington Post, “Short sales may be treated like foreclosures by credit-reporting agencies“, Kenneth R. Harney, May 16, 2013