Short Sale vs Foreclosure
Consequences You Need To Consider
Take time to compare a short sale vs foreclosure with the help of this table.
| Issue | Foreclosure | Successful Short Sale |
| Future Fannie Mae Loan (Primary Residence) | If you’ve lost your home to foreclosure, you will be ineligible for 7 years for a Fannie Mae backed mortgage. | If you successfully negotiate and close a short sale you will be eligible for a Fannie Mae backed mortgage within 2 years. |
| Future Fannie Mae Loan (Non Primary) | If you are an investor who loses a home to foreclosure, you will be ineligible for a Fannie Mae backed mortgage for 7 years. | If you are an investor who successfully negotiates and closes a short sale you will be eligible for a Fannie Mae backed investment mortgage within 2 years. |
| Future Loan with any Mortgage Company | When you apply for any future 1003 application, you will have to answer YES to question C in Section VII of the standard 1003 that asks “Have you had property foreclosed up or given title or deed-in-lieu thereof in the last 7 years?” This will affect your future interest rates. | There is nothing similar if you successfully close a short sale. If you are current at the close of a short sale, you may apply for a FHA loan immediately. If you are late before the closing, you will be eligible for a FHA loan after 3 years. |
| Credit Score | Your score will typically lower 250-300 points and be adversely affected for over 3 years. | Your score will lower as little as 50 points if all other payments have been made. Your mortgage will be probably be reported as “paid as agreed”, “paid as negotiated”, or “settled”. Your short sale effect will be as brief as 12 to 18 months. |
| Credit History | Your foreclosure will remain a public record on your credit history for at least 7 years. | A short sale will not be reported on your personal credit history. Your loan will typically be reported as stated above. |
| Security Clearances | If you are in any security related job, such as, police, military, CIA, and any other security job in almost all cases your clearance will be revoked and your position terminated. | Your successfully closed short sale will not be on a credit report and is not a threat to your employment. |
| Current & Future Employment | Your employer has the right to actively check your credit rating if you are in a sensitive position or applying for any position. A foreclosure may be grounds for immediate reassignment or termination or denial of a position. | Your successfully closed short sale will not be on a credit report and is not a challenge to your current or future employment |
| Deficiency Judgements | In 100% of foreclosures in Florida, your lender has the right to pursue a deficiency judgement against you. | It is possible that the lender will waive his right to pursue a deficiency judgement against you, but only possible during negotiations. |
| Deficiency Judgement Amount | In most cases, if you let your lender foreclose on your home it will result in a lower sales price and higher costs for the lender because of the REO process. This will result in higher possible deficiency judgement. | If you successfully sold your home through a short sale, it most likely sold close to market value. In almost every case, the result would be a lower deficiency for the lender than an REO sale. |
| Conclusion of Short Sale vs Foreclosure: Short sale the best option every time over foreclosure ! |
The information above is general in nature, deemed to be accurate as of 2011, but not guaranteed. Your case may be different, so consult with your real estate agent, lender, or lawyer to verify the consequences for your situation.
