A foreclosure will greatly affect one’s credit standing. It is believed by many that a short sale will lead to a shorter credit recovery period. Does this mean that a foreclosure damages one’s credit more than a short sale? The truth is that a short sale offers very little advantage over a foreclosure when it comes to preserving your credit standing.

Let’s be clear about it. Although there may not be an advantage in using a short sale instead of entering foreclosure when it comes to preserving credit standing or recovering FICO points sooner, using a short sale does have its advantages.

As of May 31st 2008, Fannie Mae will not allow loans for five long years to those who entered foreclosure. Fannie Mae’s current rules state that it will take two years for you to re-establish credit once you use a short sale to dispose of your property. Two years is not really that long compared to the length of time it will require to get credit once you enter foreclosure. That is a definite advantage of using a short sale instead of entering foreclosure.

Secondly, using a short sale instead of entering foreclosure reduces deficiency judgements significantly. Once a property enters foreclosure, the lender will find a way to liquidate the asset to recover the money it invested. The first try would be through an auction. However, more often than not, the lender will not be happy with the amount offered at an auction and will choose to buy the property back. When that happens, the lender will seek the help of a real estate agent to turn the property into cash. All these processes involve expenses. In the end, the lender will be able to recover about 50% of the original amount loaned to the homeowner.

Guess who will shoulder the deficit. The poor homeowner who just lost his home, of course. The longer it takes for the real estate agent to sell the property, the higher the deficiency will be. Add to that the fact that the deficiency also earns interest. You cannot get rid of a deficiency judgement unless you pay it off or declare bankruptcy.

Once a person is under a deficiency judgement, that person won’t be able to purchase anything else on credit. That may not be as bad as it sounds considering the individual should be able to get his finances in shape without the burden of additional interest-earning debts. However, the burden of paying a deficiency judgement is severe while also losing one’s home. It just simply isn’t fair, but that is how it works. The lenders will always get their money back.

Using a short sale will significantly reduce, if not eliminate, this deficiency. Part of your job as an investor is to negotiate with the lender to accept a discounted amount as “payment-in-full” for the property. A short sale is useful for both the lender and the homeowner. Plus the investor makes some profit too!

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Blue Marble Property Solutions, LLC is a Better Business Bureau Accredited Business. As a Christian owned and operated Real Estate Investment Property Company, Blue Marble specializes in Buying and Selling Pre-Foreclosures as well as negotiating Short Sales with lenders. Blue Marble Property Solutions’ Managing Partners are Derick Sutton and Ted Hall who have 60 years combined experience in business and real estate.

http://www.DiveIntoRealEstate.com