Foreclosure versus Short Sale
This week I recieved a call from a desperate single mom, Marie. She had just gone through an expensive divorce and lost her job. She had no idea where her next paycheck was coming from and she felt destitute and unable to make some sensible financial decisions. She was crying and decided bankruptcy was her only option.
I asked Marie to calm down and listen to why Foreclosure should be the absolute last option:
Security Clearances – Foreclosure is the most challenging issue against a security clearance outside of conviction of a serious misdemeanor or felony. If a client has a foreclosure and is in the military, CIA, Security, or any other position requiring a security clearance in almost all cases clearance will be revoked and position terminated. A successfull short sale avoids foreclosure and these security clearance issues.
Current & Future Employment – Employers have the right and are actively checking credit regularly of all employees 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 therefore is not a challenge to employment.
Deficiency Judgment – in 100% of foreclosures where states allow deficiency judgements, the bank has the right to pursue a defiency judgement. If the home goes through the REO process, this can result in a higher deficiency judgement. In some successful short sales it is possible to convinvce the lender to give up the right to pursuit a definciency judgement against the homeowner.
Credit Score – In foreclosure, your score may be lowered anywhere from 250 to over 300 points, which can last up to 3 years. Foreclosure will remain as a pubic record on a person's credit history for 10 years or more. In a short sale, only late payments on mortgage will show and after sale 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 a bried as 12 to 18 months.
Future Loans – An investor who has been foreclosed upon will be ineligible for a Fannie Mae backed mortgage for a period of 7 years. Even when a loan is given, interest rates will be higher becaused foreclosed clientele are deemed a higher risk. An investor who negotiates a short sale will be eligible for a Fannie Mae loan after 2 years.
Anthony Atwell, CRS, CDPE – Certified Distressed Property Expert®
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