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Issue |
Foreclosure |
Successful Short Sale |
Future Fannie Loan – Primary Residence1
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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 mortgage after only 2 years.
|
Future Fannie Mae Loan – Non Primary 2
|
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.
|
Future Loan with any Mortgage Company
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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 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.
|
Credit Score
|
Score may be lowered anywhere from 250 to more
than 300 points. Typically will affect a credit score
for over 3 years.
|
Only late payments on mortgage will show, and
after sale, mortgage is normally reported as ‘paid
as agreed’, ‘paid as negotiated’, or ‘settled’. This can lower the score as little as 50 points if all other payments are being made. A short sale’s effect can be as brief as 12 to 18 months.
|
Credit History
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Foreclosure will remain as a public record
permanently, and 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 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 position 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.3
|
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 reason
for immediate reassignment or termination.
|
A short sale is not reported on a credit report and is therefore not a challenge to employment.4
|
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.5
|
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.
|
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
will result in a higher possible 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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