Preserving your credit history, credit score or improving your financial history may not be at the top of your mind if you are a homeowner facing foreclosure. But you really need to consider the alternatives available that could help you avoid foreclosure. It is true that 7 out of 10 homeowners faced with foreclosure don't see anyway to improve their situation or avoid foreclosure. They may not be aware that there are alternatives available. Sitting back and letting foreclosure happen is not the best option!
Many distressed home sellers don't want to talk about foreclosure, are embarrassed by it, have no hope that it can change, or think it will change on its own with time. All these thoughts lead to foreclosure. We want sellers to know that there are infact opportunities out there to avoid foreclosure, including short sales. The advantages of avoiding foreclosure are huge! They will affect your credit score, credit history and financial situation now and even further into the future. The chart below is designed to inform sellers of all of those advantages of short sales vs. foreclosures.
| Consequences of Foreclosure | Results of a Successful Short Sales | |
| Ability to obtain a Fannie Mae loan for your primary residence | You'll have to wait 5 years after a foreclosure before you are elible for a mortgage that is backed by Fannie Mae. | You'll be elibible for a mortgage backed by Fannie Mae just 2 years after a sucessful short sale. |
| Ability to to obtain a Fannie Mae loan for a home that is not your primary residence | You'll be ineligible for a Fannie Mae backed loan for an investment property for 7 years after a foreclosure. | You'll be eligible for a Fannie Mae backed loan for an investment property just 2 years after a successful short sale. |
| Ability to obtain financing with any mortgage company | Applications for a mortgage will ask if you have foreclosed on a property, given title or deed in lieu for a property in the last 7 years. You'll have to answer yes and it will affect future rates. | There is not a question regarding a short sale on applications for mortgages. |
| Credit Score | Foreclosures can lower your credit score from 250 to 300 points and will usually affect your credit score for over 3 years. | Short sales are recorded on your credit as "settled", "paid as negotiated", or "paid as agreed" lowering your score as little as 50 points. Late payments also show on your credit report, but the affect may be as quick as 12 to 18 months. |
| Credit History | The record of your foreclosure is on your crredit history for 10 years or more and is a permanent public record. | A short sale is not recorded on your credit history and the loan is recorded on public records as "paid in full" or "settled". |
| Security Clearance | Outside of a serious misdemeanor or felony conviction, foreclosure is the next most challenging issue in regards to security clearances. Foreclosures for police officers, military personnel, CIA agents, security officers or others in positions that require a security clearance, in most cases will result in the security clearance being revoked and termination from the position. | A short sale alone does not challenge most security clearances. |
| Current Employment | Employees in sensitive positions may have their credit checked by their employer and foreclosure is grounds for immediate reassignment or termination. | A short sale will not show up on a credit report and therefore may not compromise employment. |
| Future Employment | Employers have the right and may do a credit check on a job application. Foreclosure is one of the most detrimental items on a credit report and could be reason enough to keep you from being employed. | A short sale will not show up on a credit report and therefore may not compromise employment. |
| Deficiency Judgement | The bank has the right to pursue a deficiency judgement after foreclosure (except in states where there is no deficiency). |
During a short sale it is possible to convince the lender to give up the right to pursue a deficiency judgement. |
| Amount of Deficiency Judgement | If a foreclosed home does not sell at auction it will be sold as an REO listing which could result in an even lower sales price and possibly an even higher deficiency judgement. |
Short sales are typically sold closer to market value resulting in lower deficiency judgements. |
