Short Sale vs Forclosure - Comparison

Issue

Short Sale

Foreclosure

Credit Score

A short sale itself will minimally affect your credit score, usually around 50-180 points. Late payments usually have the largest negative impact on your credit score from a short sale and can average 30 points or more each.  Maintaining the health of your credit score will save you money now and in the future.

Your credit score could be lowered 350+ points and will stay on your record for seven years.

Credit History

There is not a credit reporting item for a short sale.  Upon sale, your mortgage company will typically report the short sale as ‘Paid', ‘Settled in full', or ‘Paid as Negotiated' on your report. 

A foreclosure will remain on your credit for 7 years and is permanent in the public records of your county for 10 years.

Future Employment

A short sale is not an actual item on your credit report and typically will NOT affect future employment.

Employers do check your credit history for many job applicants.  A foreclosure is one of the most negative items you can have on your credit and will not remain a secret.  It may affect future employment.

Future Loan with a Mortgage Co.

You typically do not have to declare to future mortgage companies announcing that you previously performed a short sale

On the federally mandated standard loan application form 1003 you will be required to answer ‘YES' and ‘WHY' to the question ‘Have you had property foreclosed upon or given title or deed in lieu thereof in the past 7 years?' Answering ‘yes' affects the interest rate you will receive

Future Fannie Mae Loan - Primary Residence

After a successful short sale you can be eligible for a new Fannie Mae backed loan after only 2 years.

After a foreclosure you will be ineligible for a Fannie Mae backed loan for a minimum of 5 years (in Deed In Lieu for a minimum of 4 years)

Future Fannie Mae Loan - 2nd Home and investment property

After a successful short sale you can be eligible for a Fannie Mae backed loan after only 2 years on non-primary residences

After a foreclosure you will be ineligible for a Fannie Mae backed investment loan for a minimum of seven years

Deficiency Judgment

It is typical for the lender to give up the power to pursue a deficiency judgment against the borrower.  This is typically stated and negotiated in approval letters. 

Contact us now to find out about protection from Deficiency Judgement under the recently passed California Bill SB-931.

The bank has the power to pursue the deficiency judgment in all judicial foreclosures. (Consult an attorney for appropriate advise.)

Deficiency Amount

A short sale process typically causes the bank to have lower loss which results in a lower deficiency judgments amount.  This deficiency is judgment is typically forgiven or can be negotiated at time of negotiating your short sale.

The deficiency can be pursued by the bank depending on type of foreclosure procedure. We strongly advise that you consult an attorney for appropriate advise.