intro to short sales pt 1

INTRODUCTION TO SHORT SALES PART I Introduction to Short Sales Part I: A. Foreclosures 1. Why People go into Default? 2. What is Foreclosure? 3. The Foreclosure Timeline. 4. Three phases of Foreclosure. 5. Options to Stop or Avoid Foreclosure B. Bankruptcy 1. What is Bankruptcy? 2. Chapter 7 Bankruptcy 3. Chapter 13 Bankruptcy 4. Other Types of Re-organization Bankruptcy 5. The Bankruptcy Discharge 6. The Bankruptcy Dismissal C. D. Possible Negative Outcomes Attachments 1. Various News Articles to include the White House New Release -Fact Sheet: New Steps to Help Homeowners Avoid Foreclosure 2. Maryland Foreclosure Law Information 3. Washington DC Foreclosure Law Information 4. Questions and Answers on Home Foreclosure and Debt Cancellation 4351 Garden City Drive  Suite 350  Landover, Maryland 20785  Phone (301) 459-0400  Fax (301) 459-4510 www.milestonetitlellc.com 2 Introduction to Short Sales, Part I Many homeowners who have taken out large mortgages and perhaps refinanced to cover remodeling or other expenses are finding themselves unable to keep up with their mortgage payments. This could be due to many factors including layoff, divorce or illness. More and more people are finding that they need to sell their homes for less than they owe on the mortgages in order to avoid foreclosure and bankruptcy. A. FORECLOSURES 1. Why People Go Into Default? In examining foreclosure we have to look at why homeowners default. Typically, they default on their loans because they are unable to make their monthly payments. There are numerous additional market-based and personal reasons for why a homeowner might default, six of which are outlined below. Possible reasons for default: 1. Subprime Loans. Subprime loans are loans made to consumers who are economic risks to the lenders. We have seen numerous subprime mortgage lenders go bankrupt this year and shut their doors. 2. Adjustable-rate mortgages (ARMs). ARMs can be problematic for homeowners. Interest rates and monthly payment amounts increase. 3. Zero down payment loans mean zero equity at closing. If anything goes wrong, the homeowner has no equity to fallback on. 4. Illness of principal mortgagor or Illness of mortgagor's family member. 5. A devastating event in the homeowner‘s life can have serious financial repercussions, ultimately making monthly loan payments an insurmountable financial issue. 6. Market shifts with price declines compound all of these issues. If the home is worth less, the homeowner may be unable to sell the home in order to cover the balance of his loan, especially if he has little or no equity. 7. Death of principal mortgagor or of mortgagor's family member. 8. Marital difficulties and divorce. 9. Job Loss or reduction of income. 4351 Garden City Drive  Suite 350  Landover, Maryland 20785  Phone (301) 459-0400  Fax (301) 459-4510 www.milestonetitlellc.com 3 10. Excessive obligations - including habitual non-payment of debts 11. Distant employment transfer 12. Property problem 13. Inability to sell property 14. Inability to rent property 15. Military service 2. What is Foreclosure? Foreclosure is a legal process wherein the lender forces the sale of real property to pay off a loan on which the owner of the property has defaulted. A foreclosure stays on a credit record for ten years and is a tremendous hit to a customer‘s credit rating. 3. The Foreclosure Timeline The timeline for foreclosure will vary from lender to lender and from state to state. However, it typically begins with the homeowner‘s first missed payment. a. Homeowner misses loan payment. b. Late Charges may begin accruing 16-30 days after the first missed payment. c. Lender sends Notice of Default if no payment arrangements have been made (usually about 45-60 days after the missed payment).  Notice of Default Lists & Foreclosure Case Files are updated daily at the Circuit Court, Civil Division. Please see below where you can physically go to look at these lists.  Prince George’s County, Maryland 8:30 am – 4:30 pm Notice of Default Lists Annex Building 1st Floor File Room 14701 Governor Oden Bowie Road Upper Marlboro, MD 20772  Montgomery County, Maryland 8:30 am – 4:30 pm Foreclosure Cases Central Files, Lobby Level Room 117 50 Maryland Avenue Rockville, MD 20850  Anne Arundel County, Maryland 8:30 am – 4:30 pm Foreclosure Book at front desk 4351 Garden City Drive  Suite 350  Landover, Maryland 20785  Phone (301) 459-0400  Fax (301) 459-4510 www.milestonetitlellc.com 4 Updated Monthly 7 Church Circle Suite 100 Annapolis, MD 21404  Baltimore City, Maryland -Foreclosure Department -Must purchase list for .50 cents per page -Updated every Friday Courthouse East 111 N. Calvert Street Suite 460 Courthouse East Baltimore, MD 21202  Baltimore County, Maryland -They don’t have lists, you can use terminals & research foreclosures County Courts Building 401 Bosley Avenue 2nd Floor Civil Division Towson, MD 21204  District of Columbia Recorder of Deeds 515 D Street, NW Washington DC 20001 d. Notice of Intent to Foreclose is sent to the homeowner after about 60-90 days after the missed payment. The notice initiates the legal proceedings of foreclosure and is usually publicized in the newspaper and/or at the courthouse. e. 120 days after the first missed payment the Lender sends the file to their Attorney and sends an Acceleration Letter to the homeowner informing them of their right to Reinstate the loan before the auction sale date. f. 45 days later (about 120-180 days after first missed payment) the home will be offered at Auction. g. Maryland, Virginia and the District of Columbia DO NOT have Redemption periods. A redemption period allows the homeowner to buy back the property after it has been offered at the auction. h. If it doesn‘t sell at auction, the home becomes Real Estate Owned (REO) by the lender. 4. Three Phases of Foreclosure There are three major phases to a foreclosure. a. Preforeclosure 4351 Garden City Drive  Suite 350  Landover, Maryland 20785  Phone (301) 459-0400  Fax (301) 459-4510 www.milestonetitlellc.com 5 1. The first opportunity to begin work on short sales is during the preforeclosure process. 2. Preforeclosure begins with the homeowner‘s first missed loan payment. It includes the Notice of Intent to Foreclose, and concludes when the home is put up for public auction. 3. Preforeclosure is a private event between the lender and homeowner until the Notice of Intent to Foreclose is publicized at the courthouse or in the newspaper. b. Public Auction 1. Home sold to the highest bidder. 2. Open to public, usually at the county courthouse. 3. Please see the attachment for a listing of the newspapers where Foreclosure Sale Listings may be found. You can also look at the following websites:   Maryland – www.mdauction.com $19.95 per month or $119.95 per year gives you access to info on ALL Maryland auctions and foreclosures www.hometownannapolis.com click classifieds, then choose from either the Capital Classifieds, Maryland Gazette or Bowie Blade Classifieds, then click Trustee Sale Baltimore City & Baltimore County – www.mddailyrecord.com The District of Columbia – Washington Times Allegany County - Cumberland Times News Anne Arundel County - The Capital Baltimore County - The Jeffersonian Baltimore City - The Daily Record Calvert County - Calvert Recorder Caroline County - Times Record Carroll County - Carroll County Times Cecil County - The Cecil Whig Charles County - Maryland Independent Dorchester County - The Daily Banner Frederick County - The Gazette; The Frederick News Post Garrett County - The Republican Harford County - The Aegis Howard County - Howard County Times Kent County - Kent County News Montgomery County - The Gazette, The Sentinel Prince George's County - Enquirer-Gazette, The Sentinel Queen Anne's County - Queen Anne's Record St. Mary's County - The Enterprise Somerset County - Somerset Herald Talbot County - Star Democrat 6   4351 Garden City Drive  Suite 350  Landover, Maryland 20785  Phone (301) 459-0400  Fax (301) 459-4510 www.milestonetitlellc.com Washington County - The Herald Mail Wicomico County - Daily Times Worcester County - Daily Times c. Post Sale - Once the auction is completed and the sale has taken place, equitable title is transferred to the purchaser and legal title will pass at settlement. There is 30-45 day Ratification period after the selling party reports the sale to the Court during which time an audit of sale is conducted. Although rarely done, the owner or another party in interest may file an objection during the ratification period. It is very rare that an objection overturns a sale, because the Trustees closely adhere to the laws governing a foreclosure auction. d. Real Estate Owned (REO) 1. Lender becomes homeowner and will list home with a Real Estate Agent. 2. Owning a home is a liability for the lender. Lender has great incentive to sell. 5. Options to Stop or Avoid Foreclosure Following are several options that could be available to the distressed homeowner to stop or avoid foreclosure. a. Reinstatement - the lender will agree to accept one lump-sum payment which includes the total amount that is past due, sizable late fees, back payments and legal fees to reinstate the loan. Paying this amount by a specific date will bring the payments to a current status. A Reinstatement will offer you the quickest method for resolving your mortgage foreclosure. Finding the money: retirement funds, credit cards or insurance policies, private loans from family or friends or co-workers. b. Repayment Plan - the homeowner can repay part of the delinquency each month, along with their regular monthly installment, if their financial circumstances have stabilized. The homeowner will need to provide financial information to prove that they are now capable of making the new monthly payment. Remember, this monthly amount is in addition to the usual mortgage payment. Example Repayment Plan documents are attached showing the actual reinstatement amount versus how much is needed for a down payment. c. Loan Refinance – paying off an existing loan with the proceeds from a new loan, and using the same property as collateral. 4351 Garden City Drive  Suite 350  Landover, Maryland 20785  Phone (301) 459-0400  Fax (301) 459-4510 www.milestonetitlellc.com 7 d. Loan Forbearance – the homeowner is allowed to delay or reduce payments for a short period, with the understanding that another option will be used at the close of that time to bring the account to a current status. The lender, if in agreement, will then temporarily cease legal actions. e. Loan Restructuring or Loan Modification – if the homeowner can currently make their regular payment, but can‘t catch up with the past-due amount, you can negotiate with their lender to fold any past-due amounts, including interest and escrow, into the unpaid principal balance. This new amount will be re-amortized over a new period of time. Or, if the homeowner is unable to make payments at the current rate, you can negotiate with the lender to permanently change the terms of the loan to reduce the monthly payments. The intent of a modification is to eliminate the arrearage and to reduce the monthly mortgage obligation for a borrower who has recovered from financial distress, but whose net income has been reduced to a level lower than it was prior to the default. Examples of Loan Modification documents are attached. f. Partial Claim (for FHA Loans only) - If the homeowner has an FHA Loan, you can start discussions with the lender for a Partial Claim. Working together with The Department of Housing and Urban Development (HUD), the lender will agree to advance funds on behalf of the mortgagor in an amount necessary to reinstate a delinquent loan. The Mortgagor will be required to sign a promissory note with HUD, who will place a lien on the property. This HUD loan is interest-free and will bring the account up to date immediately. The loan is due in full when the mortgagor pays off the first loan or when they no longer own the property. 1. Eligibility i. Loan must be 93 days delinquent (4 full payments due and unpaid). ii. Mortgagor must have overcome the hardship that caused them to default and are able to begin making full mortgage payments. iii. The homeowner must be an owner-occupant and be committed to continuing occupancy as primary residence. 2. Terms i. The note will be interest free. ii. Monthly or periodic payment are NOT required. iii.The note will be due when the Mortgage is paid off or when the homeowner sells the property. 4351 Garden City Drive  Suite 350  Landover, Maryland 20785  Phone (301) 459-0400  Fax (301) 459-4510 www.milestonetitlellc.com 8 iv. No prepayment penalty. v. The note is payable to HUD. 3. Facts i. A Subordinate Mortgage and Note, in the amount of the advance, is prepared in the name of the Secretary of HUD. ii. Delinquency may not exceed 12 monthly payments of PITI. iii. The homeowner must verify that they were not able to repay the past due amount through a Special Forbearance or Loan Modification. iv. Cannot be used to bring the loan current for sale or assumption. v. Cannot be used in conjunction with a Loan Modification. vi. Lender cannot include late fees, legal fees, or other administrative expenses in the Partial Claim. vii. If the homeowner filed for Bankruptcy they may still qualify for a partial claim, however, the Bankruptcy Court must give approval. g. Pre-Foreclosure Sale - If the homeowner is willing to sell their home or currently has their house on the market, some lenders might agree to put the foreclosure on hold while they attempt to sell their home through traditional real estate methods. The homeowner will be able to pay off their mortgage loan to avoid foreclosure and prevent any damage to their credit rating. h. Short Sale - the homeowner who is unable to meet their debt obligations and is facing foreclosure, sells their home for less than the value of their loan and the lender accepts the sale as payment in full for the loan. Selling short gives the homeowner a way out of foreclosure and can potentially be financially advantageous for lenders. A short sale often has a better return on investment to the lender than a foreclosure and they are also paid on the loan 6 months earlier than in the foreclosure process. This allows them to collect and cash-out earlier than they would in a foreclosure. Lenders can report the short sale on the sellers credit as being ‗settled for less than the full balance‘ or ‗settled debt‘. Remember that you can always negotiate with the lender how they report the short sale. i. Deed in Lieu of Foreclosure - This procedure allows you to transfer your property voluntarily to your lender or Mortgage Company and your debt or deficiency is often forgiven. This will not save your home, but it will help you with your chances of getting another mortgage 4351 Garden City Drive  Suite 350  Landover, Maryland 20785  Phone (301) 459-0400  Fax (301) 459-4510 www.milestonetitlellc.com 9 loan in the future and it will help you avoid the lengthy legal process of foreclosure. Ask the Lender to report the deed-in-lieu of foreclosure as Paid-Settlement or Unrated. j. Bankruptcy - federal law and process whereby a person's assets are turned over to a trustee and used to pay off outstanding debts; this usually occurs when someone owes more than they have the ability to repay. By saving a customer from foreclosure or bankruptcy, not only are you doing something good for your customer, but you‘ll be doing something good for your business. Imagine the opportunity for referral business when you help your customer out of this very stressful time in their lives. B. BANKRUPTCY 1. What Is Bankruptcy? Bankruptcy is a federal court process designed to help consumers and businesses eliminate or repay their debts under the protection of the bankruptcy court. In Chapter 7 bankruptcy, property is sold (liquidated) to pay off as much debt as possible, while leaving the party enough property to make a fresh start. In Chapter 13 bankruptcy, debts are repaid over three to five years Before anyone can file for bankruptcy, they must receive credit counseling from an agency approved by the United States Trustee's office (approved agencies - www.usdoj.gov/ust). 2. Chapter 7 Bankruptcy Most people who file for bankruptcy choose Chapter 7 bankruptcy because it's fast, effective, easy to file, and doesn't require payments over time. A Chapter 7 bankruptcy typically lasts three to six months, costs $299 in filing and administrative fees and usually only requires one trip to the courthouse. A trustee is appointed by the bankruptcy court to administer the estate and liquidate the nonexempt assets. By filing for bankruptcy, all property owned and debts owed are placed in the hands of the bankruptcy court. You can't sell or give away any of the property you own when you file, or pay off your pre-filing debts, without the court's consent. a. The Automatic Stay: Delaying Foreclosure - When a Chapter 13 or Chapter 7 bankruptcy is filed, the court automatically issues an order (called the Order for Relief) that includes an ―automatic stay.‖ The automatic stay directs the creditors to cease their collection 4351 Garden City Drive  Suite 350  Landover, Maryland 20785  Phone (301) 459-0400  Fax (301) 459-4510 www.milestonetitlellc.com 10 activities immediately, no excuses. For a brief time, creditors cannot legally grab ("garnish") wages, empty bank accounts, go after the car, house, or other property, or cut off the utility service or welfare benefits. If a home is scheduled for a foreclosure sale, the sale will be legally postponed while the bankruptcy is pending—typically for three to four months. However, there are two exceptions to this general rule: 1. Motion to lift the stay. One may not get the full three to four months if the lender obtains the bankruptcy court‘s permission to proceed with the sale (by filing a ―motion to lift the stay‖). However, the bankruptcy will typically postpone the sale by at least two months, or even more if the lender is slow in pursuing the motion to lift the automatic stay. 2. Foreclosure notice already filed. Unfortunately, bankruptcy‘s automatic stay won‘t stop the clock on the advance notice that most states require before a foreclosure sale can be held (or a motion to lift the stay can be filed). b. Property liquidation -Some property may be sold to pay down the debt. In return, most or all of the unsecured debt (debt for which collateral has not been pledged) will be erased. Any property that is classified as exempt under the state or federal laws available may be kept (see list below for Maryland). However, Chapter 7 might cause you to lose property you don‘t want to give up. For example, the bankruptcy trustee could order the sale of an expensive wedding ring that exceeds the dollar amount of jewelry you‘re allowed to keep in a bankruptcy (under something called the "jewelry exemption"), so that they could pay the creditors. Under Maryland bankruptcy laws, you may keep:               Household furnishings, household goods, clothes, appliances, books and pets to $1,000 Burial plots and crypts Health aids Lost future earnings recoveries Disability or health benefits Life insurance or annuity contract proceeds Medical benefits deducted from wages ERISA-qualified benefits, except IRAs Public benefits Property of business partnership Wearing apparel, books, tools, instruments or appliances necessary for trade or profession to $5,000 75% of disposable wages Cash or any property to $6,000 Aggregate interest in real or personal property to $5,000 4351 Garden City Drive  Suite 350  Landover, Maryland 20785  Phone (301) 459-0400  Fax (301) 459-4510 www.milestonetitlellc.com 11 c. Secured debt - If money is owed on a secured debt (for example, a car loan for which the car is pledged as a guarantee of payment), you have a choice of continuing your payments on the property under the contract (if the lender agrees); allowing the creditor to repossess the property; or paying the creditor a lump sum amount equal to the current replacement value of the property. d. Liens - A bankruptcy does not wipe out voluntary liens, like mortgages and deeds of trust, or tax liens so the lender still has the right to foreclose if they are not paid. The way Chapter 7 works is that it gets rid of the debt, but not the liens. If a creditor has recorded a lien against the property because of a debt not paid (for example, because the creditor obtained a court judgment against you), that debt is also secured. e. Bankruptcy doesn't get rid of all Debts - Although bankruptcy can eliminate many kinds of debt, such as credit card debt, medical bills, and unsecured loans, there are many types of debt, including child support and spousal support obligations and most tax debts, that cannot be wiped out in bankruptcy. f. Eligibility for Chapter 7 - If you already received a bankruptcy discharge in the last six to eight years or if based on your income, expenses, and debt burden, you could feasibly complete a Chapter 13 repayment plan YOU WILL NOT be allowed to use Chapter 7 bankruptcy. g. How Chapter 7 Bankruptcy Can Help with Foreclosure - Filing for Chapter 7 bankruptcy will stall the sale and give the homeowner two or three more months to work things out with their lender. It will also help them save up some money during the process and cancel debt secured by their home. Keep in mind that a Chapter 7 cannot cancel the foreclosure. 1. Saving money. During a Chapter 7 bankruptcy, the homeowner can live in the home for free during at least some of the months while the bankruptcy is pending -- and perhaps several more after the case is closed. That money can be used to help secure a new home. 2. Canceling debt. Chapter 7 bankruptcy will also cancel all the debt that is secured by the home, including the mortgage as well as any second mortgages and home equity loans. What‘s more, it will exempt the homeowner from tax liability for any loss incurred by the lender in the foreclosure sale that will ultimately take place. 3. Chapter 13 Bankruptcy Chapter 13 bankruptcy is also known as a ―reorganization bankruptcy‖ or "wage earner" bankruptcy because, in order to file for Chapter 13, you must have a reliable source of income 4351 Garden City Drive  Suite 350  Landover, Maryland 20785  Phone (301) 459-0400  Fax (301) 459-4510 www.milestonetitlellc.com 12 that can be used to repay some portion of the debt. Under this chapter, individuals can stop foreclosure proceedings, save their home and may cure delinquent mortgage payments over time under the repayment plan. a. Repayment - When you file for Chapter 13 bankruptcy, you must propose a repayment plan that details how you are going to pay back your debts over the next three to five years. You must complete the entire three-to-five-year repayment plan in order to have the remaining debts discharged (unless the court lets you off the hook early, for hardship reasons). The majority of those who file for Chapter 13 bankruptcy don't complete their plans, so filers run a very real risk that their debts won't ultimately be discharged. 1. Mortgage Repayment - Assuming you make all the required payments up to the end of the repayment plan, you‘ll avoid foreclosure and keep your home (including debt arrearage and mortgage payments). 2. 2nd and 3rd Mortgage Payments - Chapter 13 may also help you eliminate the payments on your second or third mortgage. That‘s because, if your first mortgage is secured by the entire value of your home (which is possible if the home has dropped in value), you may no longer have any equity with which to secure the later mortgages. That allows the Chapter 13 court to ―strip off‖ the second and third mortgages and re-categorize them as unsecured debt – which, under Chapter 13, takes last priority and often does not have to be paid back at all. b. Debt limits - The debts must be within limits set by the federal government: Currently, you may not have more than $1,010, 650 in secured debt and $336,900 in unsecured debt. c. Secured debts - If you have secured debts, Chapter 13 gives you an option to make up missed payments to avoid repossession or foreclosure. You can include these past due amounts in your repayment plan and make them up over time. 4. Other Types of Reorganization Bankruptcy In addition to Chapter 13 bankruptcy, there are two other types of reorganization bankruptcy: Chapter 11 and Chapter 12. a. Chapter 11 bankruptcy - Chapter 11 is available to businesses and individuals that have substantial assets and/or income to restructure and repay their debts. The debtor remains in control of the assets as a ―debtor-in-possession,‖ although sometimes the bankruptcy court will appoint a trustee. Creditors vote on whether to accept or reject a plan of reorganization and it 4351 Garden City Drive  Suite 350  Landover, Maryland 20785  Phone (301) 459-0400  Fax (301) 459-4510 www.milestonetitlellc.com 13 must be approved by the court. When a debtor is forced out of Chapter 7 by means testing, and they have too much debt for Chapter 13, a Chapter 11 may be the only option because there is no debt limit. b. Chapter 12 bankruptcy - Chapter 12 is almost identical to Chapter 13 bankruptcy. But to be eligible for Chapter 12 bankruptcy, at least 80% of your debts must arise from the operation of a family farm. 5. The Bankruptcy Discharge A bankruptcy discharge releases the debtor from personal liability for certain specified types of debts. In other words, the debtor is no longer legally required to pay any debts that are discharged. Although a debtor is not personally liable for discharged debts, a valid lien (i.e., a charge upon specific property to secure payment of a debt) that has not been avoided (i.e., made unenforceable) in the bankruptcy case will remain after the bankruptcy case. Therefore, a secured creditor may enforce the lien to recover the property secured by the lien. Can take 4-6 weeks to get a discharge. 6. The Bankruptcy Dismissal - If a bankruptcy case is dismissed, the legal affect is that the bankruptcy is deemed void and creditors may immediately initiate or continue with state court litigation pursuant to applicable state law to foreclose on the petitioner‘s property or garnish their income. Can take up to 24 hours to get a dismissal. 4351 Garden City Drive  Suite 350  Landover, Maryland 20785  Phone (301) 459-0400  Fax (301) 459-4510 www.milestonetitlellc.com 14 D. POSSIBLE NEGATIVE OUTCOMES Foreclosures, Deeds-in-Lieu of Foreclosure, Short Sales and Bankruptcies will all damage your credit score. Following are things to consider when trying to rebuild credit as it relates to the above options. 1. A Foreclosure will damage your credit score for about 7 years, will not get rid of your other debt, and is particularly harmful if you are house shopping. The bank can seek a Deficiency Judgment for the shortage on the actual amount received versus the amount that was due. If the bank sells the house at a foreclosure auction for less than the mortgage debt, the lender can hold you responsible for the unpaid portion of the loan. For instance, if you owe $100,000 to the mortgage servicer and after the auction there are proceeds in the amount of $55,000, the remaining difference of $45,000 can be moved into a judgment against you. The judgment will also appear on your credit report along with the foreclosure. Likewise, the same judgment can be sought after the REO department sells the property for less than the full amount. Some lenders will choose the deficiency judgment while others may choose to write the loan off and issue a 1099 form, although, President Bush is currently working with Congress to reach agreement on a bill that would protect homeowners from having to pay taxes on cancelled mortgage debt. 2. A Deed-in-Lieu of Foreclosure affects the Seller‘s credit the same as a foreclosure and can bring down a FICO score by up to 250 points. A seller who wants to buy another home after foreclosure or deed-in-lieu of foreclosure will end up waiting about 3 years before a lender will offer a decent interest rate. 3. If the house is sold through a Short Sale and the lender is paid less than the mortgage debt owed, the lender can file a Deficiency Judgment for the shortage on the actual amount received versus the amount that was due. The Short Sale could show up on the borrower's credit report as a ‗pre-foreclosure in redemption status‘, and may result in a loss of 80 to 100 points on the FICO score and will stay on the credit report for 7 years. Be sure to negotiate with the lender a credit reporting status 4351 Garden City Drive  Suite 350  Landover, Maryland 20785  Phone (301) 459-0400  Fax (301) 459-4510 www.milestonetitlellc.com 15 as ‗Settled Debt‘. The Seller should be able to buy another house with a decent interest rate in about 18 months after the short sale. 4. It‘s important for you to know that the lender cannot pursue a deficiency judgment and issue a 1099. They can only do one or the other, not both. 5. Discharging your debts in Bankruptcy will harm your credit score, stay on your record for 10 years, but can help you rebuild your score quicker than after a foreclosure. This is because bankruptcy will leave you solvent and debt-free – and therefore able to start rebuilding good credit sooner. Keep in mind that the current mortgage meltdown and credit crunch may change the way bankruptcy and foreclosure affect credit ratings. Please seek the advice and assistance of a bankruptcy attorney if you or your client needs assistance. 4351 Garden City Drive  Suite 350  Landover, Maryland 20785  Phone (301) 459-0400  Fax (301) 459-4510 www.milestonetitlellc.com 16