What Are The Consequences Of A Foreclosure VS Short Sale:

So, you’ve met with a professional who is suppose to be knowledgeable about foreclosures and you still are not sure whether to let your home go to foreclosure or expend the mental energy to attempt a short sale on your property. Here are some very important points to consider in making your final decision on whether to short sale or foreclose.

Impact On Your Credit Score:

Keep in mind that there are too many variables outstanding to make a blanket assertion as to the affect on your credit score because everybody’s circumstances are different. That being said, it is possible for your score to be lowered anywhere from 250 to over 300 points if you let your house just go into foreclosure and can typically affect your score for over 3 years. With a short sale only late payments on the mortgage will show and after the sale the mortgage is typically reported as paid, negotiated, less than full payment, etc. Providing all other payments have been made on time this could potentially lower your score as little as 50 points. This does however depend on other facts like, length of credit history, amount of credit, balance to credit ratios, etc.

Impact On Your Credit History:

A foreclosure will be reported on your credit history for at least 7 years. At the time of this writing there is no reporting for a short sale. The loan is typically reported as paid, negotiated, less than full payment, etc.

Ability To Obtain Future Fanniemae Financing On A Primary Residence:

Letting a home go to foreclosure renders you ineligible for another Fanniemae backed mortgage for a period of 5 years. If your are successful closing a short sale you will be eligible for a Fanniemae backed mortgage after 2 years.

Ability To Obtain Future Fanniemae Financing On A Non Primary Residence:

If you are an investor and you let the home go to foreclosure that would render you ineligible for a Fanniemae backed mortgage for a period of 7 years. If you are an investor and you are successful at closing short sale you will be eligible for a Fanniemae backed mortgage after only 2 years.

Ability To Obtain Future Financing With Any Mortgage Company:

On any future 1003 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 affect future rates. There are no similar declarations or question regarding a short sale.

The Affect on Security Clearances:

A Foreclosure on your record can make obtaining a security clearance impossible. It can rate just below a felony conviction or a serious misdemeanor. If you have a foreclosure and are 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. A Short Sale on its own does not challenge most security clearances.

The Affect On Your 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 ground for immediate reassignment or termination. Because a short sale is not reported on a credit report there are usually no employment issues.

The Affect On Future Employment:

A lot of 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 as a result there are usually no future employment issues.

Deficiency Judgment:

Depending on your state and laws the bank has the right to pursue a deficiency judgment. With a short sale it is possible to negotiate with the lender to not pursue a deficiency judgment against the homeowner.

The Affect On Your Well Being:

This might not seem very important, but the sense of failure that most people seem to feel when there house goes to foreclosure can not be discounted. Homeowners seem to feel better about themselves when they can successfully negotiate a deal with the bank thereby saving themselves the perceived humiliation of not honoring there word to pay