Part 2: The 411 on “Short Sales” and Foreclosures

In Part 1 of “The 411 on ‘Short Sales’ and Foreclosures we defined a Short Sale and discussed what homebuyers and Realtors need to know prior to entering a Short Sale situation.

In the second part of this series I will explore Foreclosures and take a deeper look at all that is associated with the process. In addition, the ramifications of a Short Sale or Foreclosure on your credit score will also be discussed.

A Foreclosure is defined as the legal process by which an owner’s right to a property is determined usually due to default. There are four different types of default associated with Foreclosure:

• The borrower has failed to pay in accordance with the terms of their note.
• He or she has failed to pay taxes or insurance premiums.
• The borrower was in violation of the due-on-sale clause
• There was demolition or alteration of improvements, condemnation.

Once a homeowner has defaulted on a loan they enter loss mitigation. Loss mitigation can head two directions: the homeowner is declared bankrupt and the process stops, or the homeowner enters a Foreclosure situation. At this time, the owner will receive the Notice to Debtor, be evicted from the property and an REO (Real Estate Owned) Closing will take place.

The Notice to Debtor is a document that will be provided by the Lender at least 30 days before the Foreclosure date. This notice must be mailed to the property address or the address that was already designated in writing and must include the name, address and number of entity or person that the Debtor may contact.

Once the Mortgagor has been evicted, the home will go back on the market. When this occurs the Mortgagee (Lender) has two options: The home can be sold via a Real Estate Auction or it can be sold through a traditional sale.

So what happens to your credit score after a Short Sale or a Foreclosure?  For both a Short Sale and a Foreclosure, the debtor will see his or her credit score drop 200 – 300 points on average.  Short Sales do differ from Foreclosures in that they will show up on your credit score as pre-foreclosure in redemption on your credit report.

For more information about Short Sales and Foreclosures or to educate yourself on your options as a home buyer. Please visit www.UnnecessaryForeclosure.com this website, presented by the Northeast Atlanta Metro Association of Realtors provides useful tips and advice about how to avoid entering a Foreclosure situation.

All Short Sale and Foreclosure information presented in this series is courtesy of the National Association of Home Builders presentation “Short Sales and Foreclosures” given by O’Kelley & Sorohan Attorneys At Law, LLC.

Credit information was found on www.homebuying.about.com.