I came across couple of homeowners in the last couple of months who preferred foreclosure than short sale because they thought that the foreclosure is same as short sale, it doesn’t benefit at all with the short sale. Then I explained all the advantages and disadvantages of short sale because my job is to educate the homeowner who is going through this difficult time so that they can understand their options and choose which one is right for them. Those who are considering foreclosure because you think short sale is same as foreclosure then let me explain here few important points (advantages and disadvantages) between foreclosure and 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 5 years.
A homeowner who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed mortgage only after 2 years.
Future Fannie Mae Loan (Non Primary)
An Investor who allows a property to go to Foreclosure 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 are no similar declarations or question regarding a short sale.
Credit Score
Score may be lowered anywhere from 250 to over 300 points. Typically will affect score for over 3 years.
Only late payments on mortgage will show and after sale mortgage will be reported as paid or negotiated. This will lower the score as little as 50-80 points if all other payments are being made. A short sale’s affect can be a 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.
A 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’.
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.
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.
Deficiency Judgement
In 100% of foreclosures (except in those states where there is no deficiency) the bank has the right to pursue a deficiency judgment. California is a non-deficiency state.
In some successful short sales it is possible to convince the lender to give up the right to pursuit a deficiency judgment against the homeowner.
Please let me know if you have any questions on any of these above topic.
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This post gives a complete idea about avoiding the foreclosure by short sale.
Thanks Pokki! I’m glad you liked it! My goal is to educate others about short sale and how to avoid foreclosure.
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