Foreclosure vs. Short Sale

Acquiring new home loan

(pirmary residence)

A homeowner who loses a home to foreclosure may be ineligible for a  mortgage for a period of 5yrs.

A homeowner who successfully negotiates and closes a short sale may be eligible for a mortgage after 2yrs.

Acquiring new home loan

(investment property)

An investor who allows a property to foreclose may be ineligible for a investment mortgage for a period of 7yrs.

An investor who successfully negotiates and closes a short sale may be eligible for an investment mortgage after  2yrs.

Credit Score

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

Only late payments will show and may lower the score as little as 50 points if all other payments are being made.

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 Clearances

Foreclosure can be the most challenging issue against a security clearance besides a conviction of a serious misdemeanor or felony. If you hold a position that requires a security clearance, in most cases clearance will be revoked and position possibly terminated.

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 ground 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

Many employers are requiring credit checks . 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.

Deficiency Judgment

In 100% of Foreclosures (except in those states where there are 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 pursuit 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 sale in a declining market. This will result in a higher possible deficiency judgment.

In a properly 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.