Issue

Foreclosure

Short Sale

Credit Score

Your credit report will show a foreclosure during at least three years and as much as ten years, and it will typically reduce your score in a minimum of 200 to 300 points.

The late payments on your mortgage will usually show on your credit report. The short sale itself will be reported (if completed) as "Paid for less than full amount due" or similar terms.  A short sale consequence on a credit report will be shorter than a foreclosure, and will often show during only one or two years. It will impact a credit score between 50 and 200 points. Of course, other delinquencies in credit card or installments credit will be a factor in aggravating its weight.

Impact on ability to purchase a primary residence in the future: Fannie Mae information effective as of May 2008.

5 years of exclusion for any Fannie Mae related loan.

2 years of exclusion for a borrower which has completed a short sale, for any Fannie Mae related loan.

Impact of eligibility to purchase a secondary or investment property in the future: Fannie Mae information effective as of May 2008.

7 years of exclusion for any Fannie Mae related loan.

2 years of exclusion for a borrower which has completed a short sale, for any Fannie Mae related loan.

Disclosure on a future loan application

An applicant must answer YES to the question Form 1003 : “Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?” This will surely affect availability and rates, even after the 5 or 7 waiting years period.

The present 1003 Form does not contain questions about short sales history.

Deficiency Rights

In some states, the lender has the right to sue for deficiency payment, even after the foreclosure has taken place.

In most cases, negotiators are now reaching agreements with the lender to release partially or totally  the homeowner from future claims of deficiency.  But that could change.

Amount of  a Deficiency Judgment

In a foreclosure, the fees and expenses are higher than in a short sale. Therefore they could result in higher deficiency claims, if applicable in the state where the property is located.

In a short sale, the price is negotiated with less urgency than in a foreclosure. Since foreclosure costs are avoided, as are damages to the property, a future deficiency claim will most possibly be for a smaller amount.

Taxes

The amount of the lender's write-off will be shown on their report to the IRS (1099-A). This can be treated or not as an income, depending on each case. Proper advice must be taken from tax specialists.

The amount of the lender's write-off will be shown on their report to the IRS (1099-A). This can be treated or not as an income, depending on each case. Proper advice must be given by tax specialists.

The Mortgage Debt Relief Act of 2007 could protect a homeowner who has completed a short sale. In all cases, we recommend seeking the advice of tax experts.

Current Employment

Many employers require to review the credit reports of prospective employees or executives. In some sensitive positions, a foreclosure could affect negatively the status of an employee in a sensitive position.

A short sale is not a public record and will not reflect so negatively, since the credit report will show than an agreement was reached with the creditor.

Future Employment

A foreclosure does not at all look good on your credit report when applying for a job. Employers would often consider a foreclosure as a sign of immature behavior,  or irresponsible personal money management

Since is not on public records, and shows as an agreement reached with the credit to write-off part of the debt, it will not reflect so negatively on a credit report.

Security Clearance

Foreclosure could be ground for termination or have other consequences in certain sensitive jobs, as for instance certain positions in the military, police, and other government security corps.

A short sale, by its nature as a reduction or write-off of a debt should not have such a negative effect on security clearances.