Short Sale v. Foreclosure

There are several differences between a short sale and a foreclosure. The chart below helps highlight some of the most significant differences between the two options. It is highly recommended to speak with your lender, attorney and/or accountant to determine which option best fits your personal situation.

 Issue

 Foreclosure

 Successful Short Sale

Obtaining a Future Fannie Mae Loan A homeowner who loses their home to foreclosure is ineligible for another Fannie Mae Loan for a period of 5 years+. A homeowner who successfully negotiates and closes a short sale will be eligible for another Fannie Mae Loan after only 2 years+. 
Obtaining a Future FHA Insured Loan A homeowner who loses their home to foreclosure may be eligible for another FHA Insured Loan after only 3 years+. A homeowner who successfully negotiates and closes a short sale without any missed payment may be eligible for another FHA Insured Loan immediately. 
Obtaining a Future Fannie Mae Loan as an Investor An investor who loses a property to foreclosure is ineligible for another Fannie Mae Loan for a period of 7 years+. An investor who successfully negotiated and closes a short sale may be eligible for another Fannie Mae Loan after only 2 years+. 
Credit Score Score may be lowered anywhere from 250 to over 300 points for a period of 3 years or longer. Score is only affected by the late payments and the credit score may be impacted by as little as a 50 point reduction. The overall effect can be as brief as 12 to 18 months recovery time.
Credit History A foreclosure will remain public record permanently and on a person's credit report for 10 years or longer.  The debt shows as "settled" on most credit reports and in some cases "paid in full."
Security Clearance A foreclosure will usually reflect negatively and pose an issue on security clearances, sometimes resulting in a revocation of an existing security clearance. On its own, a short sale does not challenge most security clearances.
Future Employment Many employers today require credit checks on employees. A foreclosure is one of the most detrimental credit issues an applicant can have and in many cases will challenge employment, especially in financial employment opportunities. On its own, a short sale does not challenge most employment opportunities.
Deficiency Judgment The bank has a right to pursue you for the deficiency. In some successful short sales, it is possible to negotiate with the lender and have them give up the right to pursue a deficiency judgment.
Deficiency Judgment Amount The home will go through a REO process if the property did not sell at the courthouse auction. In most cases, this will result in a longer time on the market and a lowered sales price - in which will increase the deficiency judgment amount. The home should be sold at a price comparable to market value and the deficiency judgment amount may be exempt.

When faced with a short sale or foreclosure, it is always best to seek professional help immediately. Know exactly what your options are and have a Plan "B" in place, in the event the situation does not quickly improve. The longer you wait the less likely the bank will be to allow a short sale in lieu of foreclosure. The process takes time; however, with the right agent and a responsive bank - many times the foreclosure can be stopped and a short sale can be conducted successfully. At FloydRA, we have experienced short sale agents and a team of attorneys to assist in the process!

Sign up for email updates