Short Sale Pros and Cons

I have had many people ask me "why whould I do a short sale and not let it go into foreclosure?"

Well there are many reasons, some will think these are benefits and others won't it is for you to decide. First lest go over some terminology that is important.

RECOURSE LOAN: (about.com) Recourse loans get their name from the fact that lenders have power. They are allowed to go after you for amounts that you owe - even after they’ve taken collateral. If you default on a recourse loan, the lender can bring legal cases against you, garnish your wages, and try to collect the amount you owe.

NON-RECOURSE LOAN: (about.com) A non-recourse loan does not allow the lender to pursue anything other than collateral. For example, if you default on your non-recourse home loan, the bank can only foreclose on the home. They generally cannot take further legal actions against you. The bank is out of luck even if the sale proceeds do not repay the loan.

INSOLVENCY: when you owe more than you bring in.

If you have...
Primary Home, Never Refinanced - NON-RECOURSE
Primary Home, Refinanced - RECOURSE
Primary Home, got a 2nd at a later date - RECOURSE
RENTAL HOME, Refinancied - RECOURSE
Rental Home, Never refinanced - Recourse if non-owneroccupied

WHY a SHORT SALE???
Saves your Credit - Only late payments on a mortgage will show and an after sale mortgage will be reported as paid or negotiated. This will lower the score as little as 50 points if all other payments are being made. A short sales effect can be as little as 12 - 18 months. With a foreclosure score may be lowered from 250 tomore than 300 effecting it for 3+ years.

Deficency Notice - If you have a recourse loan then you want to have someone negotiating on your behalf to eliminate or reduce this debt. If you have a non-recourse loan then you don't have to worry about it. With a foreclosure you do not.

TAXES - with a short sale you have the blessing of the lender to sell your home short as well as a proven Insolvency claim. With a foreclosure you do not.

FUTURE PURCHASE: with a short sale you can get a fannie or freddie backed loan in as little as 2 years and qualify for the programs. With a foreclosure you do not.

What are the Cons of a short sale? The only real con in a short sale would be an inexperienced agent. This would be devistating.