There are many homeowners today without a clear understanding of the differences between a foreclosure and a short sale. The consequences a homeowner faces between the two can have a huge impact on their credit and employment especially if their job requires a security clearance.
In an effort to help these homeowners who may not be aware of the advantages and disadvantages of foreclosure vs short sale, I would like to explain the points at issue and consequences of both.
In a foreclosure credit your credit score may be lowered from 250 to over 300 points and it typically can affect your score for over 3 years.
With a successful short sale on your home only late payments on a mortgage will show and after sale mortgage will be reported as paid or negotiated. This will lower the credit score as little as 50 points if all other payments are being made. The effect of a short sale can be as brief ans 12 to 18 months.
Your credit history in a foreclosure will remain as a public record for 10 years or more. A short sale is not reported on your credit history as there is no specific reporting item for a "short sale." The loan is typically reported "paid in full, settled."
Outside of a conviction of a serious misdemeanor or felony a foreclosure is the most challenging issue against a security clearance. If you are in the military, in the CIA, Security, are a police officer or any other position that requires a security clearance and have a foreclosure in almost all cases that clearance will be revoked and the position terminated. A short sale on its own does not challenge most security clearances.
If you are currently employed employers have the right and are actively checking the credit regularly of all employees who are in sensitive positions. In many cases a foreclosure is grounds for immediate reassignment or termination. Since a short sale is not reported on a credit report it is as a result not a challenge to employment.
In the case of future employment many employers are requiring credit checks on all job applicants. In most cases a foreclosure will challenge employment and is one of the most detrimental credit items an applicant can have. As stated above because a short sale is not reported on a credit report as a result is not a challenge to employment.
A bank has the right to pursue a deficiency judgment in 100% of foreclosures (except in those states where there is no deficiency). It is possible in some successful short sales to convince the lender to give up the right to pursuit a deficiency judgment against a homeowner.
In regards to deficiency judgment amounts a home in foreclosure will have to go through an REO process if it does not sell at auction and can in most instances result in a lower sales price and longer time to sell in a declining market. This will result in a higher possible deficiency judgment.
When a short sale is properly managed a home is sold at a price that should be close to market value and in almost all instances will be better than an REO sale resulting in a lower deficiency.
The period for eligibility of a future loan differ greatly between a homeowner who loses a home to foreclosure and a homeowner who successfully negotiates and closes a short sale.
Effective May 21, 2008 the homeowner of a primary residence who loses a home to foreclosure is ineligible for a Fannie Mae backed mortgage for a period of 5 years. With a successfully negotiated and closed short sale a homeowner will be eligible for a Fannie Mae backed mortgage after only 2 years. In a non-primary residence 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. In a successfully negotiated and closed short sale an investor will be eligible for a Fannie Mae backed investment after only 2 years.
Eligibility for a future loan with any mortgage company for a homeowner who loses a home to foreclosure will affect their future rates and will require the prospective borrower to answer YES to question C in Section VII of the stand 1003 application that asks "Have you had property foreclosed upon or given title or deed in lie thereof in the last 7 years?" There is no similar question or declaration regarding a short sale.
A short sale is an emotional transaction but as a Certified Distressed Property Expert, I want to help take the stress out of losing your home to foreclosure and explain the full range of solutions that are available. Call me today for a confidential consultation.
Donna Bigda
Licensed Connecticut REALTOR®
10 Pine Orchard Road
Branford, Connecticut 06405
Call Donna at 203-488-1641, ext. 214
Fax 203-315-2127
by email Donna@DonnaBigda.com
or visit www.distressedhomeownershelpline.com
Mortgage Assistance Relief Services Disclosure
RE/MAX Alliance is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit rating. RE/MAX Alliance is not engaged in the practice of law nor gives legal or tax advice. It is strongly recommended that you seek appropriate professional legal counsel and tax advice for any real estate transaction.
Disclaimer: All information provided by this author is strictly an opinion, is not guaranteed, may be based on information collected from several sources, which may or may not be deemed reliable at the time of researching this article and may be time sensitive. Sellers are advised to obtain legal advice regarding the advisability and terms of any short sale agreement with creditor(s) and professional tax advice regarding tax implications of a sale.
Copyright © 2009 by Donna Bigda, All Rights Reserved ...*Foreclosure vs Short Sale*
