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Keith Lawrence

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Short Sale vs Foreclosure



FORECLOSURE VS SHORT SALE

 

In today's market short sales are everywhere and at every home price level.  Many people ask what is a short sale?  It is when the bank or mortgage company is willing to take less than mortgage owned on the property.  It is an opportunity for a home owner, that is financial troubled, to sell there home with slight affect to there credit score when compared with a foreclosure.

  

I get stopped by alot of people inquiring about short sales and why is it better on your credit score than a foreclosure.  The following is is a brief comparison of the consequences a homeowner will experience when they chose a successful short sale versus going through the foreclosure process.

 

Issue

Foreclosure

Successful Short Sale

Future Fannie Mae Loan ?

Primary Residence

(Effective May 21, 2008)

A homeowner who loses a home to Foreclosure is ineligible for a Fannie Mae backed mortgage for a period of 5 years.

A homeowner who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed mortgage in 2 years.

Future Fannie Mae Loan ?

Non Primary

(Effective May 21, 2008)

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.

An investor who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed mortgage in 2 years.

Future Loan with any

Mortgage Company

On any future 1003 application a prospective borrower will have to answer YES to question C in Section VII 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.

There is no similar declaration or question regarding short sale.

Credit Score

Score may be lowered anywhere from 250 to over 300 points.  Typically will affect score for over 3 years.

Only late payments on mortgage will show. 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 affect can be a brief as 12 to 18 months.

Credit History

Foreclosure will remain as a public record on a person?s credit history for 10 years or more.

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 of a conviction of a serious misdemeanor of 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, will be revoked and position will be determinate.

A short sale on its own does not challenge most security clearances.

Current Employment

Employers have the right and are actively checking the credit regularly of all employees who are in sensitive positions.  A foreclosure in many cases is the ground for immediate reassignment or termination.

A short sale is not reported on a credit report and therefore not a challenge to employment.

Future Employment

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 will challenge employment.

A short sale is not reported on a credit report and therefore not a challenge to employment.

Deficiency Judgment

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 sale it may be 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 net sale price and longer time to sell in a declining market.  This will result in a possible higher deficiency amount.

In a properly managed short sale the home is sold at a price that should be close to current market value and in almost all cases will be better than an REO sale resulting in a lower deficiency amount.

 

In you want to know more information about short sales please contact me directly at 201-819-6475.  As a Certified Distressed Property Expert (CDPE) and a Short Sale and Foreclosure Resource (SFR) I have the knowledge and I am here to help.

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