Short sale vs. letting it go back to the bank

Future Fannie Mae Loan - Primary Residence

Foreclosure

A homeowner who loses a home to Foreclosure is ineligible for a Fannie Mae backed      Mortgage may not be eligible for a period of 5 years or more.

Successful Short Sale

A homeowner who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed mortgage after only 2 years as it currently stands.

Foreclosure

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.

Successful Short Sale

An investor who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed investment mortgage after only 2 years as it currently stands.

Foreclosure

On any future 1003 application, a prospective borrower will have to answer YES to question C in Section VIII of the standard 1003 that asks “Have you had property foreclosed upon or given title deed in lieu thereof in the last 7 years?” this will affect future rates.

Successful Short Sale

There is no similar declaration or question regarding a short sale.

Foreclosure

Your credit score may be lowered anywhere from 250 to over 300 points. Typically this will affect your credit score for over 3 years.

Successful Short Sale

Only late payments on the mortgage will show and after a short sale the mortgage will be reported as paid or negotiated.   This will lower the score as little as 50 points if all other payments are being made.  A short sale’s affect can be as brief as 12 to 18 months.

Foreclosure

Foreclosure will remain as a public record on a person’s credit history for 10 years or more.

Successful Short Sale

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

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 require a security clearance in almost all cases clearance will be revoked and position will be terminated.

Successful Shore Sale

A Short Sale on its own does not challenge most security clearances.

Current Employment

Foreclosure

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.

Successful Short Sale

A short sale is not reported on a credit report and is therefore not a challenge to employment..

Foreclosure

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.

Successful Short Sale

A short sale is not reported on a credit report and is therefore not a challenge to employment.

Foreclosure

In Minnesota the bank has the right to pursue a deficiency judgment for second mortgages.

Successful Short Sale

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.

Foreclosure

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 sell in a declining market.  This will also result in a higher possible deficiency judgment.

Successful Short Sale

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 sale performed by the bank resulting in a lower deficiency.