ISSUE | FORECLOSURE | SUCCESSFUL SHORT SALE |
Future Fannie Mae Loan Primary Residence | A homeowner who loses a home to foreclosure is ineligible for a Fannie Mae mortgage for 5 years. | A homeowner who successfully negotiates & closes a short sale will be eligible for a Fannie Mae mortgage after only 2 years. |
Future Fannie Mae Loan-Non-Primary | An investor who has a foreclosure is ineligible for a FannieMae investment mortgage for 7 years. | An investor who closes a short sale will be eligible for a Fannie Mae investment back mortgage for only 2 years. |
Future Loan with any Mortgage Company | On any future loan application, a borrower will have to answer YES to a question “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, & after sale, it’s normally reported as “paid as agreed,” “paid as negotiated” or “settled”. This can lower the credit score by 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, & on a person’s credit history for 10 years or more. | A short sale is not reported on a credit history. The loan is typically reported as “paid in full, 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 & 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 & position will be terminated. | On its own, a short sale does not challenge most security clearances |
| Current Employment | Employers have the right to check the credit of all employees who are in sensitive positions. In many cases, foreclosure is a reason for immediate reassignment or termination. | A short sale is not reported on a credit report & is not a challenge to future employment. |
Future Employment | Many employers are requiring credit checks on all job applicants. A foreclosure is one of the most detrimental credit items for an applicant can & in most cases will challenge employment. | A short sale is not reported on a credit report & is not a challenge to future employment. |
Deficiency Judgment | In 100% of foreclosures, the bank has the right to pursue a deficiency judgment. | In some successful short sales, the Realtor can convince the lender to give up the right to pursue a deficiency judgment. |
Deficiency Judgment (amount) | In a foreclosure, the home will go through an REO process if it does not sell at auction. It may result in a lower sales price & longer time to sale in a declining market. This may result in a higher possible deficiency judgment. | In a short sale, the home is sold close to market value, & in almost all cases will be better than an REO sale resulting in lower deficiency. |