Ten Reasons Why
A Short Sale Is Better Than A Foreclosure
1. Property owners with Fannie Mae mortgages lost to foreclosure are ineligible for another Fannie Mae mortgage for 5 years. With a short sale, the ineligibility period is only 2 years.
2. Investment property owners with Fannie Mae mortgages lost to foreclosure are ineligible for another Fannie Mae mortgage for 7 years. With a short sale, the ineligibility period is only 2 years.
3. Future mortgages will be affected as the applicant will have to answer YES to question C in Section VIII of the standard 1003 that asks “Have you had property foreclosed upon in the last 7 years?”. There are no ?’s regarding short sales.
4. Credit scores may be lowered from 250 to over 300 points for 3 years or more as the result of a foreclosure. Typically, only late payments are shown with a short sale and the mortgage is reported as “paid” or “negotiated”. The impact can be as little as 50 points and often lasts for only 12 - 18 months.
5. Foreclosures are “public record” and can remain on one’s credit history for 10 years or more. Short sales are not reported on credit history. There is no specific reporting item for a “short sale” and the loan is usually reported “paid in full, settled”.
6. With the exception of a felony conviction, foreclosure is the most challenging issue against receiving a security clearance. Prior clearance can be revoked resulting in job termination. A short sale alone will usually not challenge a security clearance.
7. Employers can and do regular credit checks of employees. A foreclosure is often enough for immediate reassignment or termination. A short sale is not reported on a credit report and therefor will not be a challenge to employment.
8. Most employers require 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 therefor will not be a challenge to employment.
9. Except in states where there is no deficiency, the bank has the right to pursue a deficiency judgment in 100% of foreclosures. In a short sale, it is often possible to convince lenders to give up their right to pursue a deficiency judgement.
10. In a foreclosure, the property will have to go through the REO process if not sold at auction. This usually results in a lower sales price and longer time to sale in a declining market resulting in a higher deficiency judgement. With a short sale, the property is sold close to market value and in most cases higher than an REO sale resulting in a lower deficiency.
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