| Issue |
Foreclosure |
Successful Short Sale |
Future Fannie Mae
Loans – 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 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 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 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 VIII of the standard
1003 form 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 more than 300 points. Typically will
affect a credit score for over 3 years. |
Only late payments on mortgage will
show and after sale, the mortgage is
normally reported as “paid as agreed”,
or “Settled”. This can lower the credit
score as little as 50 points if all other
payments are being made. A short
sale’s effect can 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 specific reporting
item for short sales. The loan is
typically reported as “Paid in Full” or
“Settled”. |
| Security Clearance |
Foreclosure is the most challenging issue
against a security clearance outside a serious
misdemeanor or felony conviction. 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. |
On its own, a short sale does not
challenge most security clearances. |
Current
Employment |
Employers have the right and are actively
checking 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 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 future employment. |
Deficiency
Judgement |
In 100% of foreclosures (except in states
where there is no deficiency), the bank has
the right to pursue a deficiency judgement. |
In some successful short sales, it is
possible to convince the lender to give
up the right to pursue a deficiency
judgement against the homeowner. |
Deficiency
Judgement
(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 judgement. |
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. |