Handing Over Cash For House Keys And Short Sale Sign

Foreclosures VS. Short Sales – How will it effect you?

Are you behind in your mortgage payments?  Are you wondering about your options?  Unsure if you should try a Short Sale or just give up and let the bank take your house back?

When tasked with these kinds of questions, it is important to understand the consequences of your choices.  The following table will help you to understand the differences between Foreclosures and Short Sales.

ISSUEFORECLOSURESHORT SALE
Future Fannie Mae Loan (Primary Residence) 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 investment mortgage after only 2 years
Future Fannie Mae Loan (Non Primary) 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 1003 application, a prospective borrower will have to answer YES to question CC in Section Vlll 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 is no similar declaration or question regarding a short sale. FHA – if current at the close of short sale, a homeowner may apply for an FHA loan immediately. If homeowner is late before close of short sale closing, will be eligible for FHA loan after 3 years.
Credit Score Scores may be lowered anywhere form 250 to over 300 points. Typically will affect score over 3 years. Scores may be lowered anywhere form 250 to over 300 points. Typically will affect score over 3 years.
Credit History Foreclosure will remain as a public record on a person’s credit history for 7 years or more. A short sale is not reported on a persons credit history. There is no specific reporting item for “Short sale.” In most cases a loan is typically reported “paid in full, settled” or “paid as negotiated.”
Security Clearances Foreclosure is the most challenging issue against a security clearance outside of a conviction of a serious misdemeanor or felony. 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 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 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.
Deficiency Judgment In 100% of foreclosures (except in those states where there is no 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.

 

Contact ORENDA Real Estate Services

For more information on Short Sales or to speak with an agent about listing your Kansas City home, contact us today by calling (816) 355-4242 or CLICK HERE to connect with us online.

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