2009.09.25 03:42:23

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Which is the best option?

These days many Colorado mortgage homeowners unfortunately are finding themselves in the situation of having to decide which of these options would be best for them – Should they foreclosure on their home or should they do a short sale?

Foreclosure

The foreclosure process occurs when a lender sells or repossesses a property after the owner has failed to comply with the agreement between the lender and the borrower. This agreement is also known as the “mortgage or “deed of trust”.

A foreclose brings with it many negative consequences to the homeowner. Some of the consequences include the following:

• If arrangements have not already been made prior to the foreclosure, the lender may want the borrower to immediately vacate the property and can commence eviction proceedings.
• Just like in a short sale, a personal residence is exempt from mortgage debt relief until the end of 2012 on a federal level. An investor is not exempt from mortgage debt relief.
• By virtue of not having paid the mortgage on the property for several months, the borrowers FICO score should be poor. Then once the foreclosure is registered with the credit bureaus, the borrower’s FICO score should be expected to drop further. The foreclose will remain on the credit report for 10 years.
• If a prospective employer runs a credit check on the borrower, a job application may be denied if it shows a foreclosure.

With certain restrictions, if a borrower has a foreclosure in the past on a primary residence, the borrower may be eligible to purchase another home five years after the foreclosure was completed. Without restrictions it’s a seven year wait. If the past foreclosure was on an investment property the wait would be seven years as well.

Short Sale

A short sale is a sale of a property in which the proceeds from the sale fall short of the balance owed on a loan secured by the property sold.

A short sale may be the right choice for some borrowers. The following are some of the expected outcomes of a short sale:

• A borrower is in control of the sale, not the lender. Contrary to popular belief, a borrower can be current on the mortgage and still complete a short sale. The sale of the home will be handled like any other home sale.
• If a borrower’s payments have never fallen behind by more than 30 days and the lender does not require the borrower to pay back the loan, Fannie Mae guidelines may allow the borrower to borrow money for another home immediately. FHA would require the borrower to wait for three years before qualifying. If the borrower’s payments are in arrears yet a short sale is granted by the lender, the borrower may qualify to purchase another home with a Fannie Mae backed mortgage within two years, regardless of whether the home was a primary home or an investment property.
• Your credit score may not be lowered by the credit bureaus after a short sale if you have been current on the mortgage. The credit bureaus do not report the short sale as a short sale, but will show your mortgage as having been “paid as less than agreed” or “paid as agreed”. A possible drop in Fico points is typically due to mortgage payments being more that 30 days past due. Also, note that lenders report short sales differently and some do not report them at all!
• If you have had a foreclosure notice filed, you may be able to postpone that action while the bank considers your short sale. The wait for a short sale approval is different from lender to lender, but expect it to be two to three months or longer.

Just like in a foreclosure, a personal residence is exempt from mortgage debt relief until the end of 2012 on a federal level. An investor is not exempt from mortgage debt relief.

First Choice Mortgage Company’s is committed to be an information and education resource for the Colorado mortgage consumer and a full range of mortgage tools can be found on our website www.FirstChoiceMortgageCoLLC.com. We pride ourselves on being a full-service mortgage company where you get the advantage of experienced mortgage professionals, great rates and a very wide range of mortgage products.

First Choice Mortgage Company has built its reputation on providing outstanding service to its clients and the launch of www.FirstChoiceMortgageCoLLC.Com is yet another example of the company’s dedication to exceeding expectations.