It is true that both foreclosure and short sales have serious consequences for homeowners faced with the inability to pay thier mortgages. The following are some of the ways homeowners are affected showing the difference between foreclosure and short sale. (Source: Distressed Property Institute)
PURCHASING A HOME IN THE FUTURE...
- Fannie Mae Insured Loans for Primary Residences - Foreclosure requires a 5 year wait before purchasing again vs. a 2 year wait if you sold through a short sale.
- Fannie Mae Insured Loand for Non-Primary Residences - Foreclosure requires a 7 year wait and short sale again will only require a 2 year wait.
- Future Loan Applications - On any 1003 application the borrower who has a foreclosure will have to mark "YES" to the questions "Have you had a property foreclosed upon or given title or deed in lieu thereof in the last 7 years?", yet a borrower who has done a short sale will not have to answer yes to this question.
CREDIT HISTORY AND CREDIT SCORE
- Credit scores can be lowered anywhere from 250 to over 300 points with a foreclosure and will typically affect your credit score for over 3 years. With a short sale only late payments will show and after sale the mortage will be reported as paid or negotiated. The short sale's affect can be as little as 50 points and can be as brief as 12 to 18 months.
- Credit history for foreclosure will remain as a public record on your credit history for 10 years or more. A short sale is not reported on a credit history, typicall it shows the mortgage was "paid in full, settled."
EMPLOYMENT
- SECURITY CLEARANCE - If you have a security clearance, a foreclosure can result in a revokation of your clearance, where typcially a short sale on its own does not challenge a security clearance.
- Your current employment can be affected if your employer checks your credit regularly.
- Many employers are requiring credit checks when hiring for new positions. A foreclosure could challenge future employment opportunities.
DEFICIENCY JUDGEMENTS
- In 100% of foreclosures in Nevada the bank has the right to pursue a deficiency judgement. With a short sale the lender often agrees in writing to give up the right to pursue a deficiency judgement.
- With foreclosure the price the home sells for after the bank gets it back through the foreclosure process is often significantly less then the proceeds they would receive in a short sale. Thus the deficiency balance is typically much higher with a foreclosure than with a short sale.
There is a common misconception that foreclosure and shortsale are equal, but as you can see the truth is that the consequences of a short sale can be more favorable for homeowners.
If you or someone you know if facing foreclosure please contact me and I can help you understand the options available to you and give you referrals to others who can help.
Washoe County in the eye of the hurricane
