Short Sale vs. Foreclosure – Seller Information

By | April 27, 2010

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There are a lot of really, really good reasons not to let the bank simply foreclose on your property; to name a few, short sales have significantly less impact on your credit score, you can often avoid a deficiency judgement with a short sale, and short sales don’t jeapordize any security clearance you may have. Here’s a more comprehensive analysis.

Foreclosure Short Sale
> Primary homeowners who get foreclosed on are ineligible for Fannie Mae loans for a period of 5 years.

(Fannie Mae is one of the largest financers in the country.)

> Homeowners in a successful short sale are eligible again after only 2 years.
> Investors who get foreclosed on are ineligible for Fannie Mae loans for a period of 7 years. > Investors in a successful short sale are eligible again after only 2 years.
> On any future 1003 application, a prospective borrower will have to answer YES to question C in section VIII that asks, “Have you ever had property foreclosed upon or given title or deed-in-lieu thereof in the last 7 years?”

This will affect future rates.

> There is no similar declaration or question regarding a short sale.
> Your credit score may be lowered anywhere from 250 to over 300 points. Typically foreclosure will affect your score for over 3 years. > Only late payments will show and after sale 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 effect can be as brief as 12 to 18 months.
> Foreclosure will remain as a public record on a person’s credit history for 10 years or more. > Short sales are not reported on a credit history. There is no specific reporting item for ‘short sale’ and the loan is typically reported as “Paid in Full, Settled.”
> Foreclosure is the most challenging issue against a security clearance outside the conviction of a serious misdemeanor or a felony. Police officers, military personnel, CIA, security, and almost everyone else who has a foreclosure on their record will in almost all cases have their clearance revoked and their position terminated. > A short sale on its own will not challenge most security clearances.
> Employers have the right and are actively checking the credit regularly of all employees who are in sensitive positions. A foreclosure is in many cases grounds for immediate reassignment or termination. > A short sale is not reported on a credit report and is therefore not a challenge to 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 can present a major challenge to employment. > A short sale is not reported on a credit report and is therefore not a challenge to employment.
> In 100% of Florida foreclosures the bank has the right to pursue a deficiency judgement. > In many short sales it is possible to convince the lender to give up the right to pursue a deficiency judgement against the homeowner.
> 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 sell in a declining market. This will result in a higher possible deficiency judgement. > In a properly managed short sale where the lender has the right to pursue a 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 a REO sale, resulting in a lower deficiency.

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