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Issue
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Foreclosure
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Successful Short Sale
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Security
Clearance
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A 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 their position will be
terminated.
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A short sale on its
own does not challenge most security clearances.
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Current
Employment
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Employers have the
right to actively check the credit of employees who are in sensitive
positions. A foreclosure may provide grounds
for immediate reassignment or termination.
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A short sale is not
reported on a credit report and is therefore not a challenge to employment.
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Future
Employment
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Many employees 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 may prevent employment.
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A short sale is not
reported on a credit report and is therefore not a challenge to employment.
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Deficiency
Judgment
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In 100% of
foreclosures, except in those states where there is no deficiency, the bank has
the right to pursue a deficiency judgment.
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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.
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Deficiency
Judgment (amount)
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In a foreclosure, the
home will have to go through an REO process if it does not sell at auction. In most cases this results in a lower sales
price and a longer time on a declining market. This may result in a higher
deficiency judgment.
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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.
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Future Fannie
Mae Loan Primary Residence (Effective May 21,2008)
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A homeowner who loses
a home to foreclosure is ineligible for a Fannie Mae backed mortgage for a
period of 5 years.
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A homeowner who
successfully negotiates and closes a short sale will be eligible for a Fannie
Mae backed investment mortgage after only 2 years.
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Future Fannie
Mae Loan Non Primary (Effective
May 21,2008)
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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.
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An investor who
successfully negotiates and closes a short sale will be eligible for a Fannie
Mae backed investment mortgage after only 2 years.
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Future Loan
with any Mortgage Company
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On any future 1003
application, a prospective borrower will have to 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.
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There is no similar
declaration or question regarding a short sale.
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Credit Score
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Credit scores may be
lowered anywhere from 250 to over 300 points. This will typically affect scores for over 3
years.
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Only late payments on
a mortgage will show up on a credit report.
After the sale, the mortgage will be reported as paid or negotiated. This will lower the score as little as 50
points if all other payments are being made. A short sale's affect can be as brief as 12
to 18 months.
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Credit
History
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Foreclosure will
remain as a public record on a person's credit history for 10 years or more.
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Short sales are not
reported on credit histories. There is
no specific reporting item for a "short sale”. The loan is typically reported "paid in
full, settled”.
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