Foreclosure vs. Short Sale

Foreclosure vs. Short Sale



Successful Short Sale

Credit Score

Score  may be lowered anywhere from 250 to over 300 points.  Typically will affect score for over 3 years.

In some cases only late payments on mortgage will show and after sale mortgage is normally reported as 'paid as agreed', 'paid as negotiated' or 'settled'. This can 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. 

Credit History

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

A Short Sale is not reported on a persons credit history. There is no specific reporting item for ‘short sale’. In most cases a loan is typically reported ‘paid in full, settled’ or ‘paid as negotiated’.

Security Clearances

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

On it's own, a short sale sale does not challenge most security clearances.*

Current Employment

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.

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

Future Employment

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.

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

Deficiency Judgment

In 100% of foreclosures (except in those states where there is no deficiency) the bank has the right to pursue a deficiency judgment. 

In some successful short sales it is possible to convince the lender to give up the right to pursuit a deficiency judgment against the homeowner. 

Deficiency Judgment (amount)

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

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 an REO sale resulting in a lower deficiency.

* Short sales are currently not explicitly reported on credit report 

SOURCES: MORTGAGEE LETTER 09-52, 4155. 1 CHAPTER 4.C.2 effective date Dec 16 2009

Information courtesy of ©2010 Distressed Property Institute, LLC. All rights reserved.

 CA Department of Real Estate #01313330