| HOW DOES A SHORT SALE AFFECT ME VS. A FORECLOSURE? |
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| Issue |
Foreclosure |
Short Sale |
| Future Federal National Mortgage Association “Fannie Mae” (FNMA) Loan on Primary Residence |
You’re NOT eligible for a FNMA-backed Loan for five years |
Eligible for FNMA-backed Mortgage after two years |
| Future FNMA- backed Loan on Non-Primary Residence |
Investor allowing foreclosure NOT eligible for FNMA-backed Investment Mortgage for seven years |
Investor who successfully negotiates and closes Short Sale eligible for FNMA-backed Investment Mortgage after two years |
| Future Mortgage Loan of any kind |
On ANY future 1003 Standard Mortgage Application in next seven years, prospective borrower will have to answer “YES” to Question C in Section 8 that asks “Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?” (Affirmative answer will affect rate charged.) |
There are NO similar questions or declarations regarding a Short Sale. |
| Credit Score |
250-300 point negative impact affecting score for over three years. |
Only late payments will show, and after Short Sale, mortgage will be shown as paid or negotiated. Score will be lowered as little as 50 points if all other payments are being made. Short Sale’s affect can be as brief as 12-24 months. |
| Credit History |
Foreclosure will remain as a public record 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 Clearances |
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. |
A Short Sale on its own does not challenge most security clearances. |
| Current or Future Employment |
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. |
A short sale is not reported on a credit report and is therefore not a challenge to employment. |
| Deficiency Judgments |
In 100% of foreclosures (except in those states where there is no deficiency) the bank has the right to pursue a deficiency judgment. |
In most successful short sales in VA, it is possible to convince the lender to give up the right to pursuit a deficiency judgment against the homeowner. |
| Deficiency Judgment Amounts |
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, property is sold at a price close to fair market value. In almost every case, that results in a lower deficiency, a faster liquidation and a better outcome for all concerned. |
