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Sunday, September 14, 2008

FORECLOSURE VS. SHORT SALE

FORECLOSURE VS. SHORT SALE

Homeowner Consequences

Future Fannie Mae Loan –
Primary Residence
(effective May 21, 2008)

A homeowner who loses a home to Foreclosure is
ineligible for a Fannie Mae backed mortgage for a
period of 5 years.

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

Future Fannie Mae Loan –
Non Primary
(effective May 21, 2008)

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.

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

Future Loan with any
Mortgage Company

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 or deed in
lieu thereof in the last 7 years?” this will affect future
rates.

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

Credit Score

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

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 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.

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 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.

A Short Sale on its own 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.

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