By Greg Jordan

It is a great sadness today that more people have to choose if they should let the bank foreclose on their home. Today, this decision is happening at all income levels, and homeowners and investment property owners decide sometimes to simply walk away and let the bank foreclose, thinking that it is the easier choice.

The truth is that unless you are wealthy, and plan on paying for everything in the future with cash, you should avoid foreclosure if at all possible. And if you’re that wealthy, you ought to pay your debt anyway.

This article describes general factors that I have uncovered in working through attorneys and brokers in my real estate business, which may give you some idea of important differences between a foreclosure and a short sale. Standard warnings apply here – seek the advice of an attorney who understands your specific situation before making your decisions.

First, let’s understand that foreclosure is the bank’s way of satisfying their financial claim against the property when the homeowner fails to pay per the note terms. They have that claim because when buying the house, the homeowner gave them a mortgage to secure the loan the homeowner took out. Every state has in place its own laws for this process, so it’s best to check with the state that you are in for details that affect you.

A short sale is actually a pre-foreclosure process that allows the homeowner to sell the property with the bank’s approval, for less than what is owed to the bank. After a short sale, depending on the financial situation of the owner, and their policies, the bank will either seek a judgment against the owner for the balance, or not. If they do not pursue a judgment, the homeowner will still have to face the IRS, who views the forgiven mortgage balance as phantom income.

So, if someone, either the bank, or the IRS is going to come after the balance, or the taxes, why would anyone want to do a short sale? Why not just walk away and let the bank foreclose? Because in most states, the bank has the same rights – they can still seek a judgment against the homeowner after foreclosure.

Here are some other considerations that figure into this decision:

• With a foreclosure, your credit score may be lowered by 250 to 300 points. Typically they affect your score for over 3 years. In a short sale, the credit score is lowered by 50 points and the mortgage will be reported as paid or negotiated, while affecting your score for 12 to 18 months.
• A foreclosure remains on the credit history for 10 years or more. A short sale is not reported on a credit history. It is usually reported as “settled for less than the full amount”.
• A foreclosure in many cases is grounds for immediate reassignment or termination. A short sale is not a challenge to employment.
• A foreclosure is a serious challenge to a security clearance, in almost all cases resulting in a denial or revocation of a security clearance. A short sale is not a challenge to a security clearance.
• A foreclosure takes much longer to process than does a short sale, resulting in a higher amount of the deficiency judgment for additional taxes, maintenance, and interest costs. A short sale will usually have a much smaller judgment associated with it.
• A homeowner who loses a home to foreclosure is ineligible for a Fannie Mae mortgage for five years. A short sale homeowner is eligible for a Fannie Mae backed mortgage after only two years.

No one I am sure, wanted to be in a situation to have to make this choice. It is best of course to seek as much help as possible to avoid either one, but if forced to choose, the short sale route is truly the lesser of two evils.

Greg Jordan is an agent for the Keller Williams Company. He has been a businessman, an entrepreneur and an investor, who has been involved in real estate transactions for over 20 years.

Visit: http://www.yourfloridarealtyteam.com for information and Florida Real Estate Services.

Visit: http://www.realtimerealestateideas.com for Greg’s blog with local and national information that affect us all in real estate today.

 This is the eighth installment in our foreclosure series. Be sure to check back for updates…

Last summer, Equifax launched a new product aimed at helping people reduce their debt. This product is called Equifax Debt Wise, and it’s proving to be quite popular. To be sure, it’s a unique and interesting way to keep track of how much you owe while calculating how long it will take to pay it off. For people deeply in debt, this is a real boon. However, the service isn’t free. It comes with a price tag of $14.95 a month. This may not sound like much, but in this economy, it could be a big chunk of someone’s monthly budget. So, before you sign up, you need to make sure it’s worth it for you. Here are the facts you need to know before jumping on board with Debt Wise.

1.  It can help some people, but not everyone. People with no debt, one large debt, or only common debt like a mortgage and school loans will not benefit from the program.

2.  You’ll get four copies of your credit report when you sign up with Equifax Debt Wise. This is an excellent value, and makes the price of one month’s membership worth it for almost everyone, since you’d pay about $160 if you bought 4 reports individually. Plus, it’s always a good idea to see your credit report at least annually, so you can see if there are any mistakes there and to see where you currently stand with your creditors.

3.  You get a FICO score when you sign up. Again, this brings excellent value to the service, since you often have to pay separately to get that score. The FICO score is that magic score that lenders use to determine your creditworthiness for things like mortgages, loans, and credit cards, so it’s a good idea to know what yours is…..and work on raising it. Debt Wise can help you do this.

4.  The service provides $25,000 in free identity theft protection. That’s great if you’re worried about identity theft, and invaluable if you actually become a victim of it.

5.  The Equifax Debt Wise system tracks your progress as you pay down your debt, as long as you’re not tracking credit cards you’re currently using. It tracks payments on static debt and old debt. Still, it’s nice to be able to see on the computer screen just how close you are to reaching your goal of being debt free. It’s motivational.

So, for most people, Equifax Debt Wise can provide a very good value, at least for a month or two. You may decide you don’t need the service anymore after that, as you learn to track your debt on your own. For the perks you get when signing up, though, it’s well worth the price for a month or more. It’s a service that can really be useful to many people, at least for a little while. For that reason alone, it’s worth giving it a try.

This is the seventh installment in our credit & debt series. Be sure to check back for updates…