Wednesday, 9th of September 2009 at 03:25:25 PMA couple of weeks ago, I wrote on the topic of doing a Foreclosure or a Short-Sale. Since that time, I’ve come to learn a few new things that I want to share to help clarify the decision. Much of what I said wasn’t about the FICO score because I don’t believe that FICO alone is ever used in deciding to loan money or not, it is just one of many factors.
Recently I read an article that sheds light on the different options you have when you must give up your property and how that will effect your ability to borrow money in the future. The paragraph I found most informative is:
When it comes to foreclosures and deeds in lieu of foreclosure, the policy distinguishes between events that were precipitated by extenuating circumstances (e.g. job loss, major illness) and those that were not (e.g. financial mismanagement). If you’ve had a foreclosure without extenuating circumstances, you can’t purchase with a Fannie Mae – backed loan for five years. However, if there were extenuating circumstances, it drops to three years. Suppose you chose the deed in lieu of foreclosure option. If there were no extenuating circumstances, the period would be four years, but with such circumstances, it drops to two. Fannie Mae doesn’t draw the distinction when it comes to short sales: the period is two years, the same as doing a deed in lieu with extenuating circumstances.
This really points out how important it is to have extenuating circumstatnce (or a hardship), without it you will be waiting longer to be able to get a loan again. My phone has been ringing a lot lately from people that are wanting to just walk away from their contiments which is okay as long as there is understanding what the effect will be. Having to rent a place for up to 5 years is a very long time and I don’t want clients stuck with that if I can help it.
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