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Foreclosure Vs. Short Sale Homeowner Consequences Issue Foreclosure Successful Short Sale Future Fannie Mae Loan A homeowner who loses a home to A homeowner who successfully negotiates Future Fannie Mae Loan An Investor who allows a property to An Investor who successfully negotiates Non Primary to go to Foreclosure is ineligible for a and closes a short sale will be eligible for a (effective May 21, 2008) Fannie Mae backed investment Fannie Mae backed investment mortgage mortgage for a period of 7 years. after only 2 years. ______________________________________________________________________________________________ Future Loan with On any future 1003 application, a There is no similar declaration or question any Mortgage prospective borrow will have to regarding a short sale. Company 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. ______________________________________________________________________________________________ Credit Score Score may be lowered anywhere In some cases only late payments on a from 250 to over 300 points. mortgage will show and after sale mortgage Typically will affect score for over will be reported as paid or negotiated. This 3 years. will lower the score as little as 50 points if all other payments are being made. In some states default can be reported as a foreclosure, however at this time a short sale instead of a foreclosure will affect a borrower much less. A short sale's affect can be as brief as 12 to 18 months. ______________________________________________________________________________________________ record on a person's credit history person's credit history. There is no for 10 years or more. specific reporting item for a short sale. In most cases a loan is typically reported paid in full, settled or paid as negotiated. ______________________________________________________________________________________________ Security Clearances Foreclosure is the most challenging A Short Sale on its own does not issue against a security clearance challenge most security clearances. 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. ______________________________________________________________________________________________ actively checking the credit regularly report and is therefore not a challenge to of all employees who are in sensitive employment. positions. A foreclosure in many cases is grounds for immediate reassignment or termination. _________________________________________________________________________ Future Employment Many employers are requiring credit A short sale is not reported on a credit checks on all job applicants. A report and is therefore not a challenge to foreclosure is one of the most employment. detrimental credit items an applicant can have and in most cases will challenge employment. ______________________________________________________________________________________________ those states where there is no to convince the lender to give up the right deficiency) the bank has the right to to pursuit a deficiency judgment against pursue a deficiency judgment. the homeowner. ______________________________________________________________________________________________ Deficiency Judgment In a foreclosure the home will have In a properly managed short sale the home to go through an REO process if it is sold at a price that should be close to does not sell at auction. In most market value and in almost all cases will be cases this will result in a lower sales better than REO sale resulting in a lower price and longer time to sale in a deficiency. declining market. This will result in a higher possible deficiency judgment. _______________________________________________________________________________________________ |