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The Arizona Short Sale Part 2: The Differences And Consequences Of A Foreclosure Vs An Arizona Short Sale

Welcome to part 2 in this series on the Arizona short sale process. In the previous article I outlined the definition of short sale and discussed why a lender may be willing to use a short sale in the first place. Today, I want to take it one step further and give you some distinctions between entering a foreclosure proceeding and beginning the Arizona short sale process.

choose an arizona short sale

Banks are now realizing that foreclosing on a home, which is basically defined as the process of the bank taking control of your home, may not always be the best option for them or the most profitable option either. Notice: I used the phrase “taking control of your home” because technically the bank owns your home if you have a loan on it. In a foreclosure, the lender will take on many expenses. For example, to complete an Arizona foreclosure proceeding and take control of the property a bank or lender will incur the following:

  1. Legal fees for both court and an attorney
  2. Maintenance and remodeling fees
  3. Marketing costs required to sell the property to a new buyer
  4. Loss of revenue in the form of no mortgage payments being made
  5. Vandalism: many homeowners have taken their frustrations out by damaging the home they are forced to leave.

To make matters worse, the bank will now posses a non performing asset. This reflects badly on their books and inhibits their ability to lend money to produce positive cash flow. Again, the bank does not want your home… They want interest payments on loaned cash. I have heard many estimates; however, it has been shown that banks can lose somewhere between 20% and 30% more by taking a homeowner through a foreclosure that if they were to agree to a short sale.

In most cases the Arizona short sale is much less expensive and this is another reason that a lender would choose this option over foreclosure. In an Arizona short sale, the bank or lender would simply agree to take a lesser amount for the property and the home would go to market in much the same way as any other property.

Of course, you will need an experienced real estate professional when entering an Arizona short sale who understands the process completely because of the increased paperwork and negotiations necessary to push a deal through. Be sure that whomever you hire will fight hard for your best interest! So what about the credit consequences you ask? In truth, the credit consequences of a foreclosure and those of a short sale will vary to a degree. A foreclosure will show up on your credit report for 7-10 years. The result can show up on your credit rating or FICO score with a net loss of 200-280 points which is a huge hit. Obviously, you will want to avoid such heavy penalties if possible.

If you opt to perform an Arizona short sale on your property, my credit experts tell me that it will show up on your credit as a “pre-foreclosure in redemption”, a “settlement for less than owed”, or simply as a “settlement”. So, as you can imagine the credit penalties will be slightly different since you will not show anything with a status of “foreclosure”. However, because most lenders and banks will not consider the Arizona short sale until you become delinquent on your mortgage payments, your credit report will also reflect “late” on each of these payments. Of course, none of these options is a good thing to have, still it may be possible to get them off of your credit report within a few years or less in some cases, whereas the “foreclosure” is guaranteed to hurt you for 7 – 10 years.

My credit experts tell me that by using an Arizona short sale to get rid of a burdensome debt, you can expect your credit score to drop by 100 – 200 points. Opinions will vary on this one. The fact is that while an Arizona short sale may not be quite as bad as a foreclosure, you can still expect to have your credit severely affected. The good news is there are good credit repair programs available. It is possible to start a credit repair program as soon as you complete your short sale. And, in some cases, there may be the possibility of negotiating with the lender to have your short sale not reported to the credit agencies.

Now that you have gotten more of the information regarding an Arizona short sale be sure to contact Charlie at Arizona Short Sale Tips to get specific information on your situation. You will be glad you did!

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