Foreclosure vs Short Sale

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Before you give up and let your house go into foreclosure, learn what possible consequences you may face and why a short sale might be a better option for you. In addition to our consultation, we strongly advise you to consult with your attorney and tax advisor before you make any final decision.

 

Issue Foreclosure Short Sale
Future Fannie Mae Loan -Primary Residence
A homeowner who loses a home to foreclosure is ineligible for a Fannie Mae-backed mortgage for a period of 5years. A homeowner who successfully negotiates and closes a short sale will be eligible for a Fannie Mae-backed mortgage after only 2 years.
Future Fannie Mae Loan – Non-Primary
An investor who allows a
property to go to foreclosure is ineligible for a Fannie Mae-backedinvestment mortgage for a period of 7 years. An investor who successfully negotiates and closes a short sale will be eligible for a Fannie Mae-backed investment mortgage after only 2 years.
An investor who successfully negotiates and closes a short sale will be eligible for a Fannie Mae-backedinvestment mortgage after only 2 years.
Future Loan with any Mortgage Company
On any future application, a prospective borrower will have to answer “YES” to question C in Section VIIIof the standard 1003 form that asks “Have you had a property foreclosed uponor given title or deed in lieu thereof in the last 7 years?” This will affectfuture rates. There is no similar declaration or question regarding a short sale. There is no similar declaration or question regarding a short sale.
Current Employment Employers have the right and are actively checking in the credit of all employees who are in sensitive positions. In many cases, a foreclosure is reason for immediate reassignment or termination. A short sale is not reported on a credit report and is therefore not a challenge to employment.
Future Employment Many employers are requiringcredit checks on all job applicants. Aforeclosure is one of the most detrimental credit items an applicant can haveand in most cases will challenge employment. A short sale is not reported on a credit report and is therefore not a challenge to future employment.
Credit Score Score may be lowered anywhere from 250 to more than 300 points. Typically will affect a credit score for over 3 years. Only late payments on mortgage will show, and after sale, mortgage is normally reported as “paid as agreed”,“paid as negotiated’, or settled”.This can lower the score as little as 50 points if all other paymentsare being made. A short sale’s effectcan be as brief as 12 to 18 months.
Credit History Foreclosure will remain as a public record permanently, and on a person’s credit history for 10 years or more. A short sale is not reported on a credit history. There is no specificreporting item for “short sale”. Theloan is typically reported “paid in full, settled”.
Security Clearance Foreclosure is the most challenging issue against a security clearance outside a serious misdemeanoror felony conviction. If a client hasa foreclosure and is a police officer, in the military, in the CIA, security,or any other position that requires a security clearance, in almost all cases clearance will be revoked and position will be terminated. On its own, a short sale does not challenge most security clearances.
Deficiency Judgment In 100% of foreclosures (except in those states where there is no deficiency), the bank has the right topursue a deficiency judgment. In some successful short sales, it is possible to convince the lender to give up the right to pursue adeficiency judgment against the homeowner.
Deficiency Judgment (amount) In a foreclosure, the home will have to go through an REO process if it does not sell at auction. In most cases this will result in a lowersales price and longer time to sale in a declining market. This will result in a higher possibledeficiency judgment. In a properly managed short sale, the home is sold at a price that should be close to market value, andin almost all cases will be better than an REO sale resulting in a lowerdeficiency