It is true that the majority of foreclosures in Arizona take place through a trustee sale which is a relatively quick, easy and painless process when compared to the judicial foreclosures most often used in other states. This is not, however, a “get out of jail free card.” The foreclosure itself may actually be easier than negotiating a short sale; there is no paperwork to collect and submit to the bank, no hassling with showings while the property is on the market and no waiting months for bank approval. The long-term effects of a foreclosure, however, could be much more detrimental. The two most important reasons to consider a short sale as an alternative to foreclosure are: 1. To minimize the damage to your credit. 2. To reduce your financial liability. Minimizing Credit Damage: While it may not seem important now, having a foreclosure on your credit record can have grave effects in the future. - A foreclosure can keep you from obtaining another home loan for 5-7 years.
- Lenders can require you to disclose a foreclosure on future loan applications for the rest of your life.
- A foreclosure can lower your credit score by 300 points or more.
- A foreclosure is the one credit report item that is almost impossible to have “repaired.”
- Many employers run credit checks on prospective employees and foreclosure can keep you from being hired or even put your current position in jeopardy.
Reducing Financial Liability: Depending on the type of loan and the type of property you own, you may not be protected from future financial liability by the Arizona anti-deficiency statute if your home goes to foreclosure. If the anti-deficiency statute does not apply, your lender could file a deficiency judgment against you or sue you for the deficiency balance if the property sells for less at the trustee sale than the balance currently owed. If this happens, you could have wages garnished or be forced to give up other assets such as investment accounts or other property to repay the deficiency. By pursuing a short sale, you are much more likely to be granted a settlement option. A settlement occurs when the lender agrees to accept a fixed dollar amount, usually a percentage of the loan balance, in exchange for forgiveness of the remaining debt. In most cases, the borrower will not be responsible for any remaining debt above and beyond the agreed upon settlement payment. If you are unable to make a settlement payment in exchange for debt forgiveness, you may also be offered an unsecured promissory note as part of the short sale agreement. If the lender negotiates an unsecured promissory note, the lien on the property will be released so that the property may be sold, but you will be required to pay back some or all of the remaining debt. An unsecured promissory note is similar to other types of unsecured debt such as credit card debt. By working with the AZ Short Sale Team to negotiate a settlement or an unsecured promissory note, you are much more likely to avoid any future financial liability for loans that are not protected by the anti-deficiency statute. |