You're at a point where you need to make a decision – when your first reaction might
be to freeze and do nothing. However, that may be the worst option! When considering
a short sale, review the consequences below and always consult with legal
and tax advisors.
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Issue
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ForeClosure
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Successful Short Sale
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Future Fannie Mae Loan (Primary Residence)1
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A homeowner who loses a home to Foreclosure is ineligible for a Fannie Mae backed
mortgage for a period of 5 years.
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A homeowner who successfully negotiates and closes a short sale will be eligible
for a Fannie Mae-backed mortgage after only 2 years.
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Future Fannie Mae Loan (Non Primary)2
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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. An investor who successfully
negotiates and closes a short sale will be eligible for a Fannie Mae backed investment
mortgage after only 2 years.
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An investor who successfully negotiates and closes a short sale will be eligible
for a Fannie Mae backed investment mortgage after only 2 years.
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Future Loan with any Mortgage Company
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On any future 1003 application, a prospective borrower will have to answer YES to
question C in Section VIII of the standard 1003 that 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.
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There is no similar declaration or question regarding a short sale.
FHA – If current before executing a short sale, a homeowner may apply for an FHA
loan immediately. If homeowner is late before short sale execution, will be eligible
for FHA loan after 3 years.3
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Credit Score
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Score may be lowered anywhere from 250 to over 300 points. Typically will affect
score for over 3 years.
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Only late payments on mortgage will show, and after sale, mortgage is normally reported
as 'paid as agreed', 'paid as negotiated', or 'settled'. This can lower the score
as little as 50 points if all other payments are being made. A short sale's effect
can be as brief as 12 to 18 months.
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Credit History
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Foreclosure will remain as a public record on a person's credit history for 10 years
or more.
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A Short Sale is not reported on a persons credit history. There is no specific reporting
item for 'short sale'. In most cases a loan is typically reported 'paid in full,
settled' or 'paid as negotiated'.
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Security Clearances
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Foreclosure is the most challenging issue against a security clearance outside of
a conviction of a serious misdemeanor or felony. If a client 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.
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On its own, a short sale does not challenge most security clearances.4
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Current Employment
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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.
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A short sale is not reported on a credit report and is therefore not a challenge
to employment.5
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Future Employment
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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.
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A short sale is not reported on a credit report and is therefore not a challenge
to employment.6
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Deficiency Judgment
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In 100% of foreclosures (except in those states where there is no deficiency) the
bank has the right to pursue a deficiency judgment.
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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.
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Deficiency Judgment (amount)
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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.
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In a properly managed short sale the home is sold at a price that should be close
to market value and in almost all cases will be better than an REO sale resulting
in a lower deficiency.
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