Foreclosure VS Short Sale

Here are the differences (advantages and disadvantages) between the short sale and foreclosure. I can understand that at these difficult times, you want some honest answers and options to know which one is better in your situation.

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. There are lots of options to stop foreclosure and before considering anything, I would recommend to consult with your attorney and CPA because each individual’s situation is different from one another. Here are the few important points to consider before foreclosure or 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 in foreclosure. 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.

I have helped many families in bay area to stop the foreclosure from their credit history (Check few of the Success Stories where my clients gave their experiences in working with me) , so if you have any questions or would like my help to do short sale so that you can avoid foreclosure, please let me know, I would be happy to assist you. You can reach me directly at 510-366-9405 or submit the below contact form.