Short sale foreclosure

Judah Realty Short Sale & Distressed Property Services

Distressed Property

Short sales and foreclosures are the result of homeowners in distress. A “short sale” simply means the homeowner’s lender has given permission to the homeowner to sell the home for less than the remaining balance of the loan.

To accomplish this, the seller must show the lender why s/he is in distress, such as job loss or illness, or that home values have fallen to the point that the seller doesn’t have enough equity in the home to break even or sell at a profit. If the seller can show means to continue paying the note, it’s unlikely the bank will grant a short sale, but if it appears the seller is about to default, the bank may agree to a short sale in order to minimize its losses.

The terms of the short sale allow the seller to walk away from the mortgage while avoiding foreclosure, but the loss to the lender will be reflected in the seller’s credit report, possibly delaying his/her ability to repurchase a home in the near future. At the least, the next lender will require a larger down payment or demand a higher interest rate.

Foreclosure Proceedings

Once a homeowner defaults on mortgage payments, the bank begins foreclosure proceedings. The homeowner has many chances to stop the sale by paying the amount owed, until the home is put into a public auction. At that point, the homeowners loses all ability to retrieve the home. If the home does not sell at auction, it’s taken back by the bank as an “REO” which stands for “real estate owned”. The home then becomes an asset holding of the bank. REO’s are managed by asset managers who are employed or contracted by the bank. REO’s are placed on the open market, often with a real estate professional who specializes in distressed sales. Foreclosures that are purchased this way typically are sold “as-is,” which means the bank has no intention to make environmental or structural repairs. So, buyer beware. When a buyer makes an offer on an REO, the asset manager decides whether or not to counter or accept, and strives to get as close to or above the original loan amount as possible.

Avoid Foreclosure

Multiple options to consider if your goal is to stay in your home:

Options to consider if you cannot or do not wish to stay in your home:

Have you had a negative credit even in the past?

Loan Type Negative Credit Event
Foreclosure Short Sale/Deed in Lieu of Foreclosure Chapter 7 Bankruptcy Chapter 13 Bankruptcy
Conventional (Determined by date of application)
  • 7 years from completion date
  • 3 years from completion date if the borrower puts 10% down*
  • 7 years if the borrower puts <10% down
  • 4 years if the borrower puts 10% down
  • 2 years if the borrower puts 20% down
  • 2 years if the borrower puts 10% down*
  • 4 years from date bankruptcy was completed
  • 2 years from date bankruptcy was completed*
  • 2 years from date bankruptcy was completed
  • 4 years from the date of dismissal by a judge
FHA
(Determined by date of application)
  • 3 years from completion date
  • Less than 2 years but not less than 12 months from completion date*
  • 3 years from completion date
  • Wait period not required if borrower is current on mortgage/debts & is not taking advantage of declining market conditions
  • 2 years from date bankruptcy was completed
  • Less than 2 years, but no less than 12 months the date bankruptcy was completed*
  • 1 year payout has elapsed & payment performance is satisfactory
VA
(Determined by date of credit approval)
  • 2 years from completion date
  • Between 12-23 months from completion date*
  • 2 years from completion date
  • 2 years from date bankruptcy was completed
  • Between 12-23 months from the date bankruptcy was completed*
  • 1 year payout has elapsed & payment performance is satisfactory
USDA
(Determined by date of credit approval)
  • 3 years from completion date
  • Less than 3 years*
  • 3 years from completion date
  • Less than 3 years from completion date*
  • 3 years from date bankruptcy was completed
  • Less than 3 years from date bankruptcy was completed*
  • 1 year from date of repayment was completed and bankruptcy completed
  • Less than 1 year*
What events might qualify as extenuating circumstances? * Extenuating circumstances are temporary events that are beyond a borrower’s control, such as the loss of a job, medical bills or the death of a wage earner. Divorce and the inability to sell the house after a job relocation do not qualify. These events must be verified and documented, and they are subject to review by an underwriter.