|
Issue |
Foreclosure |
Successful Short Sale |
| Future Fannie Mae Loan-Primary Residence1 |
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 after only 2 years. |
|
Future Fannie Mae Loan-Non-Primary2
|
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 investment mortgage after only 2 years. |
| Future Loan with any Mortgage Company |
On any future application, a prospective borrower will have to answer YES to question C in Section VII of the standard 1003 form 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 a short sale. |
| Credit Score | Score may be lowered anywhere from250 to more than 300 points. Typically will affect a credit score for over 3 years. |
Only late payments on a mortgage will show, and after sale, mortgage is normally reported as “paid as agreed’, ‘paid as negotiated’, or ‘settled’. This can lower the score as little as 50 points. A short sale’s effect can be as brief as 12 to 18 months. |
| Credit History | Foreclosure will remain as a public record permanently, and on a person’s credit history for10 years or more. |
A 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 a serious misdemeanor or felony conviction. 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 clearance will be revoked and position will be terminated. |
On its own, a short sale does not challenge most security clearances.3 |
| Current Employment | Employers have the right and are actively checking the credit of all employees who are in sensitive positions. In many cases, a foreclosure is reason for immediate reassignment or termination. |
A short sale is not reported on a credit report and is therefore not a challenge to employment.4 |
| Future 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 in most cases will challenge employment. |
A short sale is not reported on a credit report and is therefore not a challenge to employment.5 |
| 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 sales, it is 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 sales price and longer time to sell in a declining market. This will result in a higher possible deficiency judgment. | In a property managed 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 an REO sale resulting in a lower deficiency. |
1 Fannie Mae Announcement 08-16: Michael A. Quinn, Senior Vice President, Single-Family Risk Officer
2 Fannie Mae Announcement 08-16: Michael A. Quinn, Senior Vice President, Single-Family Risk Officer
3 Short Sales are currently not explicitly reported on a credit report.
4 Short Sales are currently not explicitly reported on a credit report.
5 Short Sales are currently not explicitly reported on a credit report.