Foreclosure versus Short Sale

Tim Tucker is a Certified Distressed Property Expert. This means he is an expert in Short Sales and Foreclosure sales – both representing Sellers and Buyers.

A common question is “Why bother, I’m out of the house in a short sale or a foreclosure?”….  There are good reasons to avoid a foreclosure. Here is a table comparing the consquences for important post sale actions between foreclosure and short sale. The information was provided by the Distressed Property Institute, the certifying body for Distressed Property Experts.

Future Activity Foreclosure Doing a Short Sale Instead
Future Fannie Mae Mortgage
Primary home
No Fannie Mae backed mortgage for 5 years Only blocked for 2 years.
Future Fannie Mae Mortgage
Secondary Home
No Fannie Mae backed mortgage for 7 years. Only blocked for 2 years.
Future loan with ANY company. Your rates will be affected for at least 7 years. No effect.
Credit Score Your score will drop by 250 to 300 points and stay
down for 3 years.
The only effect will be if you skipped payments.
For 12 to 18 months your score may dip 50 points.
Credit History Foreclosures are public records and last on your
credit history for at least 10 years or longer.
Short sales do not go on credit history as “short”.
The loan is shown as “paid in full, settled”.
Security Clearances Foreclosure can stop issuance of a security clearance
or if you already have one you can lose your
clearance.  If your work requires a clearance,
do NOT foreclose.
Only the most rigorous clearances will find a short
sale, and in most cases it will not affect the clearance.
Your current job Jobs in sensitive positions, where financial stress
may make you unqualified for the position, monitor
your credit history. Foreclosure could lead to
They only know if you tell them.
Future jobs Many employers check credit, and a foreclosure
can be a leading sign of other troubles. Expect
it to be a challenge to future employment.
They only know if you tell them.
Hounding you for more money You still owe money in a foreclosure. And you can
expect banks to come after you if they think you
have it.  Also, expect the amount to be higher
than what you owed because of the drop in value
of the property through foreclosure.
In most short sales, including all that we have done, the bank
gives up the right to go after you for more money. And even
if they do, the amount is MUCH smaller than with foreclosure.

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