Orange County Southern Califorinia Dana Point Real Estate

Name
braccio_btn
aLife

What's the Difference Between a Short Sale and a Foreclosure?

Scrutinize the following comparisons between short sales and foreclosures for a better understanding of why short sales are a more preferred alternative for most homeowners. While a short sale is a elaborate process, the fruits of your patience and earnestness will be well worth it in the end!

What are the consequences to my credit score?

Following a successful short sale, your mortgage will be reported on your credit score as either "paid" or "negotiated", lowering your score as little as 50 points and negatively affecting you for only 12 to 18 months. After a foreclosure, however, your credit score can lower as much as 300 and usually at a minimum of 250 points and negatively affects your score for over three years.

What are the ramifications to my credit history?

A short sale is most commonly reported as "paid in full" and will not be reported on your credit history. A foreclosure will endure on your credit history for 10 years or more and will continue on as public record, making a short sale far less consequential.

Who decides whether my home should undergo a foreclosure or a short sale?

In short sales and foreclosure alike, the decision is made by your mortgage lender. The most important facets to getting a lender to agree to a short sale, and saving you the more devastating credit ramifications of a foreclosure, is to show that you have no other means by which to pay the mortgage and that the amount received from a short sale is the fair market price. Lenders who believe they can make more money by taking possession of the home in a foreclosure and selling it themselves will not agree to a short sale.

How long will it take until I can purchase another home?

After a foreclosure, you may wind up waiting another 2 to 6 years before a mortgage lender will extend you an interest rate that is acceptable. Most mortgage lenders report that for homeowners who have been through a previous short sale they may get a reasonable interest rate in less than two years. Fannie Mae guidelines allow a short seller to apply for a new loan immediately if payments were kept up-to-date and have had no 60-day late payments on their record.

What will be the effects on my future loans?

For most mortgage lenders you will not be required to make a declaration or be interrogated regarding a short sale on any standard loan application (1003). In reference to foreclosure, you will be asked on any subsequent standard loan application (1003) if you have had a property foreclosed within the last 7 years, henceforth adversely affecting your rate. Fannie Mae backed mortgages will be obtainable to you following a short sale after two years. Fannie Mae backed mortgages will not be attainable to you for at least 5 years if you have lost your home due to a foreclosure.

Does it affect my employment opportunites?

A short sale does not appear on a credit report and will not harm or hinder your current employment status. In comparison, if you have a foreclosure on your credit report, some employers may consider it grounds for termination or reassignment since many employers run credit checks on employees for particular positions. A foreclosure can be exceedingly detrimental to your opportunities for being selected for a new job if your credit report is taken into consideration.

How does a short sale versus a foreclosure affect the deficiency judgment?

If your short sale is properly handled and executed successfully, the lender may give up the right to pursue a deficiency judgment against you. If the lender does pursue a deficiency judgment against you after a successful short sale, the amount will be substancially lower due to the fact that your home was sold at a price closer to market value than that of an REO (Real Estate-Owned) sale. In all foreclosures, with the exception of those states without deficiency, the bank has the right to file a deficiency judgment against you. Since your foreclosed home will have to go through the REO process if not sold at auction for a lower sales price, this results in a greater deficiency judgment against you.

If you want to speak to me NOW call 949 212-1147 OR for a response in 3-12 hours Robyn@RobynSeymour.com

FORECLOSURE vs. SHORT SALE

Homeowner Consequences

Issues Foreclosure    Successful Short Sale
Future Fannie Mae Loan - Primary Residence A homeowner who loses a home to foreclosure is not eligible 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-Primary An investor who allows a property to go to foreclosure is not eligible 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 VIII 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 adversely affect future rates. There is no like declaration or question regarding a short sale.
Credit Score Score may be decreased anywhere from 250 to more than 300 points. Typically this will affect a credit score for over 3 years. Only late payments on mortgage will show, and after sale, mortgage is usually reported as 'paid as agreed', 'paid as negotiated', or 'settled'. This can decrease the score as little as 50 points if all other payments are being made. A short sale's effect can be as short as 12 to 18 months.
Credit History Foreclosure will remain as a public record invariably, and on one's credit history for 10 years or more. A short sale is not declared on a credit history. There is no specific reporting item for 'short sale'. The loan is usually declared 'paid in full, settled'.
Security Clearance Foreclosure is the most challenging issue against a security clearance next to 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.
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.
Future Employment More and more, many employers are requiring credit checks on all job applicants. A foreclosure is one of the most mental credit items an applicant can have and in most cases will challenge or impede employment. A short sale is not reported on a credit report and is therefore not a challenge to future 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 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 turn out a lower sales price and longer time to sale in a declining market. This will result in a higher possible deficiency judgment. In a properly and successfully 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.