Short Sale vs. Forclosure
| Issue | Successful Short Sale | Forclosure |
Future Fannie Mae Loan Primary effective May 1, 2008) |
A homeowner who successfully negotiates and closes a Short Sale will be eligible for a Fannie Mae backed mortgage after only 2 years. |
A homeowner who loses a home to foreclosure is ineligible for a Fannie Mae backed mortgage for a period of 5 years |
Future Fannie Mae Loan Non-Primary (effective May 1, 2008) |
An investor who successfully negotiates and closes a Short Sale will be eligible for a Fannie Mae backed investment mortgage after 2 years. |
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 |
Future Loan with any Mortgage Company |
There is no similar declarationn or question regarding a short sale. |
On any future 1003 application to answer YES to question C in Section VIII of the standard1003 that asks "Have you had property forclosed upon or given title or deed in lieu thereof in the last 7 years?"This will affect future rates. |
| Credit Score | Only late payments on mortgage will show and after sale mortgage will be reported as paid or negotiated This will lower score as little as 50 points if all other payments are being made. A Short Sales effect can be as 12 to 18 months. |
Score can be lowered anywhere from 250 to over 300 points. Typically will affect score for over 3 years. |
| Security Clearances | A short Sale on its own does not challenge most security clearance. |
Forclosure is the most challenging issue against security clearance outside of a conviction. If a client has a Forclosure and is a police officer, in the Military, in the CIA, Security or any other position that requires a security clearance, in most cases clearance will be revoked and the position will be terminated. |
Current Employment |
A Short Sale is not reported on a credit report and therefore not a challenge to employment. |
Employers have the right and are actively checking the credit regularly of all employees who are in a challenge to employment |
Future Employment |
A Short Sale is not reported on a credit report and therefore not a challenge to employment |
Many empoyers are requiring credit checks on all job applicants. A foreclosure is one of the most detrimental credit items an applicant can challenge employment |
| Deficiency Judgement (amount) |
Depending on the type of loan some lenders who accept a short sale may be able to pursue a borrower for a deficiency judgment. many successful short sales it is possible to convince the lender to give up this right as part of the deal. |
In many states, depending on the kind of loan, the bank has the right to pursue a def-iciency judgment |
Deficiency Judgement (amount) |
In a property managed Short Sale the home is sold at a price that should be close to market value and in most cases will be better than an REO Sale resulting in a lower deficiency |
In a Forclosure 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 sell in a declining market. This will result in a higher possible deficiency judgment |
Basic source of material provided by Distressed properties Institute, LLC. Reprinted with permission.