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Valley Short Sale Expert
Lauren Nemeschansky
Remax of Santa Clarita short sale
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Top 10 Myths and Facts about Shorts Sales

Short Sale Myths
Short Sale, Short Sale Myth, Short Sale Realtor

You might have read or heard from your friends what is required or what happens in a short sale. Below I will describe 10 myths about short sale.

Myth #1 You must be behind in your payments to do a short sale.

Absolutely NOT true! My clients and I have been told this by many different professionals, realtors, bankers, and lawyers who claimed to be short sale experts, some even advise people to stop making their payments, yet I personally have had short sales approved for people who NEVER missed a payment. The bank worked with us to allow the house to be sold quickly and the credit of the homeowners remain intact.

Myth#2 The lender will never approve a short sale if you owe too much or your home has decreased too much in value.

Not true, the lenders base their decision on a formula that starts with an appraisal of the house for its current market value (BPO). They then compare the amount of money they would receive from the proceeds of a short sale to the money that they would receive from the house sold at auction as a foreclosed property, including the high costs of foreclosing and maintaining the home. Generally, short sales are much, much less expensive for lenders. I have had short sales approved by lenders for homeowners who owe close to one million dollars ABOVE what the house sold for and they were forgiven their entire amount of debt by the lender.

Myth #3 You will never be released from the debt of your second mortgage in a short sale if it is an “equity line of credit” and they will “come after you for it later.”

Absolutely NOT true. I often have homeowners released from several hundred thousands of dollars of debt on second equity lines of credit for both purchase and non purchase money. I recently completed a short sale where I negotiated with the banker to release my client from over $400,000 worth of debt that was on his second equity line of credit. No future repayment will ever be required of him and the money was NOT used as purchase money but for living expenses due to a decrease in business and temporary unemployment by his wife. This will not be the case for everyone, and sometimes the bank will not forgive the second but often they will. Often times the lender of the second will settle for a greatly reduced amount paid to them out of the sale proceeds by the first mortgage holder, each decision is made on an individual basis. Basically as part of the negotiations for the approved short sale, we convince the first lien holder to pay a sum of money to the second lien holder to release your debt and forgive your loan completely. However, if you foreclose you will not be automatically released from any of your obligations and they can and probably will “come after you” especially if you owe money on a second and or an equity line of credit since you did not negotiate any sort of settlement with your mortgage lender and the investor. If, after a foreclosure the second lien holder does “come after you” for the money, it is possible to fight the second lien holder if the money was used as purchase money or sometimes if the money was used to repair or improve the house, however to do so you may have to hire an attorney which can be quite costly, time consuming and let’s face it, court is not a very pleasant situation. It is much easier and cost effective to negotiate with both the first and second lien holder for debt forgiveness as part of the short sale process.

Myth #4 A short sale can be as “bad” to your credit as a foreclosure.

USUALLY NOT! While it is true that the effect that a short sale can have on your credit score can vary considerably depending on your starting credit score, the amount of payments missed and how the short sale is reported by the bank to the credit agencies, a short sale is usually considered better than a foreclosure on your record. A short sale shows future lenders that you acted in a “responsible” manner and “sold” your home for as much as the current market would allow and “settled” your debt rather than just walking away. In fact, the lender makes the final decision on which of three ways to report your short sale. The first way “paid in full” is the best way to report. The second way “paid as settled” can have no affect on your credit, lower it very slightly, or lower it many points. The third way is “unrated” which is a neutral report that does not lower your score
If you allow your home to be foreclosed on, it is reported as “foreclosed” a VERY negative statement on a credit report. It is also “stamped” on your credit report. Your account has not been “paid” nor “settled” and while there are laws in California that protect a homeowner from a deficiency judgment on a “home purchase money loan” after a foreclosure, there is nothing to protect you from a future lawsuit brought about by the bank and investors for any second mortgage or equity line that you may have. This MUST be negotiated with them in advance of foreclosure, short sale , or deed in lei (where you give the banker your deed which is also very bad on your credit report and is reported as a foreclosure with identical consequences to your credit).
A homeowner who loses a home because of a foreclosure or deed in lieu is typically ineligible for a loan backed by Fannie Mae for 5 years. However, if the homeowner sells their home by means of a short sale they will be eligible for such a loan in only 2 years. An investor who allows his property to foreclose will have to wait approximately 7 years for an investment mortgage, but if he had his realtor successfully negotiate a short sale then he could acquire a new investment mortgage in only 2 years also. Many investors sell their investment homes as short sales so that they can buy back into the market sooner and at favorable investment loan rates which would be unavailable to them if they had chosen to foreclose on those investments.
A foreclosure will commonly lower your credit score between 250-300 points and will affect your credit for 3 years or more. Often times with a short sale it is only the late payments that will show and after the sale it will be reported as either paid or settled and may not lower it at all or may only lower it as little as 50 points. The affect of a short sale on your credit sometimes may only last for 12-18 months and the short sale homeowner may make other non home purchases using credit at favorable rates.
A foreclosure will remain as a public record on your credit history for 10 years or more but a short sale is NOT stamped on your credit report, and that makes a BIG difference!
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Contact Information

ReMAX of Santa Clarita
Valley Short Sale Expert
25101 The Old Road #232
Santa Clarita, Ca 91381

Phone: 661-310-8215
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About Lauren

REmax real estate agent
Lauren Nemeschansky is a REMAX
Real Estate agent serving
all of Santa Clarita,
Valencia, Stevenson Ranch,
Saugus, Canyon Country,
Newhall and Castaic.
San Fernando Valley and Los Angeles
HAFA short Sale Expert
CDPE certified real estate agent
M.S. Degree from California State University, Northridge
Real Estate License DRE#0172935:

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Short Sale Realtor Serving: Santa Clarita, Valencia, Stevenson Ranch, Saugus, Canyon Country, Castaic, Newhall
Copyright © 2013 All Rights Reserved. Valley Short Sale Expert, Lauren Nemeschansky
Lauren Nemeschansky is a Licensed REMAX Real Estate Agent DRE#0172935       Google
All information provided is deemed reliable but not necessarily accurate, neither Lauren Nemeschansky nor REMAX of Valencia shall be held liable for any inaccuracies or results thereof. This website and the information provided herein is for general educational purposes and is not meant to provide solutions for debt or mortgage problems or substitute for the counsel of a professional. Distressed homeowners are recommended to seek the advice of an attorney and tax professional. All rights to the content of this website are reserved and shall not be sold, duplicated, used or published in any manner without the express and written permission of Lauren Nemeschansky