Foreclosure vs. Short Sale: Homeowner Consequences

TIMELY INFORMATION FOR THE EMPOWERED CONSUMER

Many homeowners are still confused on the difference between a foreclosure and short sale and the consequences of each. We will be outlining some of these issues in a series of posts here on Blogging About Redding to help you sort through the mountain of information that exists out there.

ISSUE:  (Future Fannie Mae Loan-Primary Residence)

As of May 21, 2008 a homeowner who loses a home to Foreclosure is ineligible for a Fannie Mae backed mortgage for a period of 5 years. However, a homeowner who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed mortgage after only 2 years.

ISSUE:  (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. However, an investor who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed investment mortgage after only 2 years.

ISSUE: (Credit Score)

Score may be lowered anywhere from 250 to over 300 points for someone who loses their home to foreclosure.  Typically a foreclosure will affect the score for over 3 years. For those who do a Short Sale, 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 50 points (not bad!) if all other payments are being made. A short sale's affect can be as brief as 12 to 18 months.

ISSUE:  (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 a short sale. The loan is typically reported "paid in full, settled".

ISSUE:  (Security Clearances)

Foreclosures is the most challenging issue against a security clearance outside of a conviction of a serious misdemeanor or felony.  If a homeowner 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.  HOWEVER...a Short sale on its own does not challenge most sercurity clearances.

ISSUE: (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.  Because a short sale is not reported on a credit report it is therefore not a challenge to employment.

ISSUE: (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 however, is not reported on a credit report and is therefore not a challenge to employment.

ISSUE: (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 pursuit a deficiency judgment against a homeowner.

ISSUE:  (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.  But in a properly managed short sale the home is sold at a price that should be close to market value and is almost all cases will be better than an REO sale resulting in a lower deficiency.

We are Certified Distressed Property Experts, we can walk you through and explain the advantages of doing a Short Sale. There is absolutely no cost in doing a short sale. Call today for a confidential meeting regarding your choices.

Chris and Maria Jeantet, Realtors (530) 510-0810

1801 Buenaventura Blvd Redding CA 96001