Luxury Home Short Sale Vs Foreclosure

by Jack Crowder on November 23, 2011

Strategic defaults are becoming more common today among homeowners who owe more than their property is worth. They simply walk away from the home and let the lender take it back.

Financial experts warn that the consequences can be severe. The American Bankers Association recently warned homeowners about the consequences of strategic default, including the possibility of the bank’s obtaining a judgment to pursue the homeowner’s other assets, including stocks, bonds, real property, bank accounts, cars or other.

Deliberately walking away from a mortgage may prevent your obtaining a subsequent mortgage for between 4 and 7 years. Government mortgages typically take 4 years to qualify. Fannie Mae recently said that one would be ineligible for 7 years if they intentionally defaulted on a mortgage.

Any foreclosure impacts ones’ credit rating badly. Craig Watts, public affairs director of FICO says that a foreclosure is a strong predictor of future risk. These reports remain on ones credit report for 7 years, though the impact lessens after about two years. This assumes that other debts are being paid on time. A foreclosure definitely lowers the FICO score by several hundred points.

Tax liability is another potential danger of defaulting. The Mortgage Forgiveness Debt Relief Act of 2007 (extended through 2012) offers widespread protection from federal taxes following a foreclosure. Some state taxes still may be due on unpaid debt.

A deficiency judgment means that a lender can come after assets other than the mortgaged property when a borrower defaults on a loan. Some “non-recourse” states will not allow this. In Florida, courts award deficiency judgments all the time following home foreclosures.

Short sales often provide a far better solution for the distressed homeowner. This is particularly true for higher priced properties, where lenders are more amenable to negotiations. They prefer to recover a portion of their money as quickly as possible rather than having to report a huge loss on their books.

Florida courts often award deficiency judgments for the amount not satisfied of the original loan. Short Sale Commando’s team always request a release from lenders during short sale negotiations. The release prohibits the lender from going to court later and asking for a deficiency judgment. This protects the homeowner.

Visit Short Sale Commando to discover viable alternatives for the upside down luxury home owner in Florida.. Free reprint available from: Luxury Home Short Sale Vs Foreclosure.

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