Foreclosure Vs. Short Sale
| Foreclosure | Short Sale |
| Current Employment | |
Employers have the right and are actively checking the credit regularly of all employees who are in sensitive positions. A foreclosure in many cases is ground 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 requiring credit checks on all job applicants. A foreclosure is one of the most detrimental credit items an applicant can have and in most cases will challenge employment. | A short sale is not reported on a credit report and is therefore not a challenge to employment. |
| Security Clearances | |
Foreclosure is the most challenging issue against a security clearance outside of a conviction of a serious misdemeanor or felony. If a client has a 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. | A short sale on its own 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 to pursue a deficiency judgment. | In some successful short sales it is possible to convince the lender to give up the right to pursue a deficiency 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 lower sales price and longer time to sale in a declining market. This will result in a higher possible deficiency judgment. | In a properly managed short sale the home is sold at a price that should be close to market value and in almost all cases will be better than an REO sale resulting in a lower deficiency. |
| Future Fannie Mae Loan – Primary Residence (effective May 21, 2008)
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| A homeowner who loses a home to foreclosure is ineligible for a Fannie Mae backed mortgage for a period of 5 years. | 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 (effective May 21, 2008) | |
| An investor who allows a property to go to foreclosures is ineligible for a Fannie Mae backed investment 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. |
| Future Loan with any Mortgage Company | |
| On any future 1003 application, a prospective borrower will have to answer YES to question C in Section VIII of the standard 1003 that asks “Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?” This will affect future rates. | There is no similar declaration or question regarding a short sale. |
| Credit Score | |
| Score may be lowered anywhere from 250 to over 300 points and typically will affect score for over 3 years. | Only late payments on a mortgage will show and after a short sale, mortgage will be reported as paid or negotiated. This will lower the score as little as 50 points if all other payments are being made. A short sale effect can be as brief as 12 to 18 months. |
| Credit History | |
| Foreclosure will remain as a public record on a person’s credit history for 10 years or more. | Short sale is not reported on a credit history. There is no specific reporting item for “short sale”. The loan is typically reported “paid in full, settled.” |