Consequences of a Foreclosure vs. a Short Sale

Issue

Foreclosure

Successful Short Sale

Security Clearances

This is the most challenging issue against a security clearance outside of a conviction of a serious misdemeanor or felony.  If you have a foreclosure and are a police officer, in the military, in the cia, security or any other position that requires a security clearance in all most all cases the clearance will be revoked and the position may likely be terminated. 

A short sale on its own will 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 grounds 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 applications.  A foreclosure is one of the most detrimental credit items an applicant can have and in most cases could challenge employment.

 A short sale is not reported on a credit report and is therefore not a challenge to employment

 Deficiency Judgment

In 100% of foreclosures 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 the homeowner.

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 after only 2 years.

Future Fannie Mae Loan Non-Primary

An investor who allows a property to foreclose is ineligible for a Fannie Mae backed investment mortgage for a period of 7 years.

An investor who allows a property to short sale is eligible for a Fannie Mae backed investment mortgage after only 2 years.

Future Loan -Any Mortgage Company

On any future 1003 application, a borrower will have to answer yes to question C in section VIII that's 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 and approvals

There is no similar question regarding a short sale.

Credit Score

Score may be lowered anywhere from 250 to over 300 points.  Typically it will affect the 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 points if all other payments are being made.  A short sales affect can be as brief as 12 - 18 months.

Credit History

Foreclosure will remain as a public record for 10 years or more.

Short sale is not reported on a credit history.  There is no specific reporting item for "short sale".  The loan is typically reported as paid in full, settled.