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Think A Short Sale Is The Same As A Foreclosure? Think Again.

By Jim McNinch

Real Estate Agent with Trademark Loss Mitigation

September 26, 2012 06:01 AM

The Series on The Top Ten Short Sale Questions Asked By Houston & Spring TX Sellers

Continues With Question #8: What Is The Difference Between Foreclosure And A Short Sale?

How many times have you heard or been told a short sale is the same as a foreclosure? Before you walk away from your distressed mortgage and let the property fall into foreclosure without pursuing a short sale, please consider the following differences between the two.

Why A Short Sale Is Better On Your Credit Than A Foreclosure

Credit Scores – When a homeowner has their home foreclosed on, it typically affects his or her credit score by between 250-300 points. This is a catastrophic impact to a credit score and it happens because the foreclosure is reported DIRECTLY on a credit report. In a short sale, there is NO standard code that is reported. CLICK HERE TO SEE "WHAT IS A SHORT SALE."

Ultimately, the late payments can have as little as a 50 point impact on your score. In addition, a foreclosure affects a score for up to 7 years or more. In a short sale, the effect usually lasts 12-18 months, depending on delinquency. In fact, it is not uncommon for someone to be able to get a new home loan virtually immediately after a short sale if they have remained current on their payments or if their credit has not been affected by other debts.

Credit History – Because a foreclosure is specifically reported on a person’s credit, by law it must remain on that person’s credit report for at least 7 years. In a short sale, because there is no specific reporting code, it is not reported on a person’s credit history.
Ability to get Future Loans – Anyone who tries to get a home loan has to fill out a 1003 application. Question C in Section VIII of this form asks the question, “Have you had a property foreclosed upon or given title or deed-in-lieu thereof in the last 7 years?”

Obviously, if a homeowner goes through foreclosure, having to answer yes to this question means that it is will be almost impossible to receive a loan for at least 7 years. In a short sale, there is no such requirement. In fact, with an FHA loan, a homeowner who goes through a short sale can receive a new home loan IMMEDIATELY assuming they were current on their payments and their credit wasn’t affected by other debts. Fannie Mae and Freddie Mac loans are also available for those who go through short sales in about 2 years or less, depending on circumstances.
Security Clearance – If a homeowner is in the military or holds any other highly sensitive job that requires an official security clearance, a foreclosure is second only to a felony conviction as the most challenging issue in keeping that status. In most cases, as soon as a foreclosure hits a person’s credit, he or she can be reassigned or let go from that position and obtaining a new security clearance is often impossible.

What is the difference between a short sale and foreclosure

After viewing all the facts, the choice is crystal clear. There simply is no situation in which it is better to simply allow a home to be foreclosed on.

As a Certified Distressed Property Expert (CDPE), I make it my business to know all of the ins-and-outs of the options that are available for people who are in danger of losing their homes. Even if you are not specifically eligible for a short sale, it is important to remember one thing:

THERE ARE OPTIONS! Contact me today and schedule your free, confidential consultation. 832-330-4588 or jim@trademarklossmitigation.com