| Issue |
Foreclosure |
Short Sale |
| 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 investment mortgage after only 2 years |
| Future Fannie Mae Loan - Non-Primary |
An investor who allows a property to go to foreclosure is ineligible for a Fannie Mae-backed mortgage for a period of 7 years |
An investor who successfully negotiates and closes a short sale will be elgible for a Fannie Mae-backed investment mortgage in only 2 years |
| Future Loan with any Mortage 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 a 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 more than 3 years |
Only late payment on mortgage will show and after sale, mortgage is normally reported as "paid as agreed," "paid as negotiated" |
| Credit History |
Foreclosure will remain as a public record permanently, and on a person's credit score for over 3 years |
A short sale is not reported on a credit history. Ther 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 positionh 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. |
| 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 a reason for immediate termination or reassignment. |
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 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. |
| Deficiency Judgment |
In 100% of foreclosuress (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 may 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. |
