1) Credit worthiness: Foreclosure will remain as a public record on a person’s credit history for 10 years or more. A Homeowner who loses a home to Foreclosure is ineligible for a Fannie Mae backed mortgage for a period of 5-7 years.
Short Sale: Not reported on a credit history. There is no specific reporting item for “Short Sale”. The loan is typically reported as “Paid in Full, As Agreed or Settled”. An investor who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed investment mortgage after only 2 years.
2) Privacy: A Homeowner must disclose on any future loan applications. On the 1003 of a loan 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 also affect future rates when applying for a loan.
Short Sale: Kept private, there is no similar declaration or question regarding a short sale.
3) Credit Scores: Score may be lowered anywhere from 250 to over 300 points. Typically will be affect for 3 years or more.
Short Sale: Only late payments on mortgages will show up on the credit report and after the short sale, mortgage will be reported as one of the following, paid in full, settled or paid as agreed. In this case the credit score will be lowered as little as 50 – 111 points. A short sale’s affect on the credit report can be as brief as 12 to 18 months.
4) Employment/Security Clearance: Foreclosure is the most challenging issue against a security clearance outside of a conviction of a serious misdemeanor or felony. Any position that requires a security clearance in almost all cases, clearance will be revoked or terminated for certain jobs. And can affect promotion, position eligibility or may not qualify for hiring.
Short Sale: Does not challenge clearance.
5) Deficiency Judgment: In a foreclosure the home will have to go through an REO process (Real Estate Owned). If the property does not sell at an Auction, in most cases this will result in a lower sales price and longer time to sell in a declining market as we are now in. If a homeowner Modify the loan in any shape or form, such as Refinancing the original loans or pull out a line of credit. This will result in a higher possible deficiency judgment, and Banks has the right to and may pursue a deficiency judgment for the total loss, please see your CPA and Attorney for details.
Short Sale: In some successful short sales it is possible to convince the lender to give up the right to pursuit a deficiency judgment against the homeowner. A short sale may satisfy all debts to the lenders.
