Issue |
Foreclosure |
Successful Short Sale
|
Future Fannie Mae Loan – Primary
Residence1 |
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-Primary2 |
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.
|
Future Loan with any Mortgage
Company |
On any future application, a
prospective borrower will have
to answer YES to question C in
Section VIII of the standard
1003 form 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.
|
There is no similar declaration
or question regarding a short
sale. |
Credit Score |
Score may be lowered anywhere
from 250 to more than 300
points. Typically will affect a
credit score for over 3 years.
|
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. |
Credit History |
Foreclosure will remain as a
public record permanently, and
on a person’s credit history for
10 years or more. |
A short sale is not reported on
a credit history. There is no
specific reporting item for
‘short sale’. The loan is
typically reported ‘paid in
full, settled’. |
Security Clearance |
Foreclosure is the most
challenging issue against a
security clearance outside a
serious misdemeanor or felony
conviction. 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. |
On its own, a short sale does
not challenge most security
clearances. 3 |
Current Employment |
Employers have the right and are
actively checking the credit of
all employees who are in
sensitive positions. In many
cases, a foreclosure is reason
for immediate reassignment or
termination. |
A short sale is not reported on
a credit report and is therefore
not a challenge to employment. 4
|
Future Employment |
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. |
A short sale is not reported on
a credit report and is therefore
not a challenge to future
employment. 5 |
Deficiency Judgment |
In 100% of foreclosures (except
in those states where there is
no deficiency), 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 pursue a
deficiency judgment
against the homeowner.
|
Deficiency Judgment (amount)
|
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.
|
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. |