This is my first go at a blog, so I thought I would talk about a topic for which people are always asking me questions:  Short Sales, Foreclosures, Bankruptcies and Credit Scores.  These just seem to be the topic-of-the-day everywhere you go.

The most frequently asked questions are:

What is a Short Sale?

A Short Sale is one step before a Foreclosure.  You contact your mortgage company and ask them to agree to a sale of your home in which the proceeds do not pay off the existing mortgage.  The mortgage company ends up accepting a loss on the transaction.  A Short Sale looks better on your credit report than does a Foreclosure.

When do I apply for a Short Sale?

If you feel like continuing to make mortgage payments on your home is truly a losing venture, don’t wait.  Contact your mortgage company now.  They will provide you with a variety of required forms.  You will have to prove to them that you are in a hardship situation by documenting your financial position.

Who do I talk to about proceeding with a Short Sale?

You call your mortgage company and ask for the Loss Mitigation Department. This is the only department that can help you resolve this issue.  The people in Customer Service will try to help you, but they can’t.  Only the Loss Mitigation Department has the authority to resolve this.  Note that the Loss Mitigation Department may be in another state and have a totally different phone number.

What’s the difference between a Short Sale and a Foreclosure?

A Short Sale is a precursor to a Foreclosure.  If your mortgage company will permit the Short Sale, and the house gets Sold, then there will not be a Foreclosure.  In most cases, your mortgage company would rather work with you to get the home Sold as a Short Sale rather than proceeding with a Foreclosure.  If the Short Sale does not work, then the home will be read for auction on the steps of the courthouse in the county where the home is located.  Until the reading on the courthouse steps, the home still belongs to the owner. If, at the auction, no one buys the home, then it is considered a Foreclosure, it goes back to the mortgage holder for disposition, and the homeowner is no longer involved.  At this point it is called an REO ( real estate owned ) property. 

Should I also do a Bankruptcy?

You will need to discuss this with your accountant.  If you are buried in credit card debt, and the house payment is putting you in a hardship situation, and the income is just not there to cover everything, then the accountant may suggest “yes” to the bankruptcy.

How will all of this affect my credit scores?

A Bankruptcy will ding your credit score the hardest, followed by a Foreclosure, then the Short Sale.  These will appear on your credit report for 10 years, but you can rebuild your credit score with good financial mangement.  Calculate every future purchase, and the impact it might have on your score.  Time heals all wounds, and a lot of things can be explained in writing during the rebuilding process.  

And… if you know someone that needs to inquire about any of these options, ask them to call me for a very confidential discussion.

Don’t wait.  Waiting can only compound the problem as well as cause a lot of sleepless nights.

and…ps:  the Atlanta market is improving.  In talking with mortgage people, closing attorneys, home inspectors, appraisers, and other real estate agents, they all agree that things are getting better.  Interest rates are still incredible.  The inventory of homes for sale has never been better.  And the prices across the board have never been better.  If you are planning to buy, now is your very best time.  Get on board now and start counting your appreciation.