Matter

Short Sale

Foreclosure

Credit Score

Only late payments on mortgages will show on your credit report with a short sale. Once completed, it will be reported as “settled for less than full amount due” (or similar wording). Many factors are at play but if you keep everything else current the impact can be as little as a 50 point reduction. A short sale’s affect may be as brief as one year.

A foreclosure will reflect as a public record on your credit report, just like a bankruptcy. The impact of a foreclosure can be anywhere from 200 to over 300 points. A foreclosure can affect the score for a minimum of 3 years and will report for 7 to 10 years.

Credit History

Only the late payments will be reported on your credit. The short sale will appear the same as a charge off on a credit card and will be reported as “settled for less than full amount due” (or similar verbiage).

A foreclosure will remain as a public record on your credit history for 7 to 10 years along with any late payments made.

Future Real Estate Purchase

Primary Residence

Fannie Mae Loan

After a short sale most people will be eligible for a Fannie Mae loan within 24 months.

After a foreclosure you will not be eligible for a Fannie Mae backed mortgage for 5 years.

Future Real Estate Purchase

Non Primary Residence

Fannie Mae Loan

After a short sale investors will be eligible for a Fannie Mae mortgage within 24 months.

After a foreclosure investors will not be eligible for a Fannie Mae backed mortgage for 7 years.

Future Financing Ability!

There are not any questions related to a short sale on the loan application.

On any future loan application you will be required to disclose that you have had a property foreclosed on which may negatively affect your interest rate.

Deficiency Rights Position

In most cases we are able to negotiate a complete release of all liens and notes with no deficiency rights retained by the lender.

In California, many loans give the lender the right to pursue the homeowner for a deficiency judgment after the foreclosure has taken place. This is a double whammy if you have already lost your home.

Deficiency Judgment Amounts?

In a short sale, the sales price is usually at market value or just bellow. In most cases, the amount of the deficiency is smaller than in a foreclosure, the result being a smaller amount that the lender could pursue.

In a foreclosure, the final sales price is lower than in a short sale and the fees involved for the bank are higher. If the lender does have deficiency rights, this can result in a higher amount that they will be able to pursue.

Taxes

At the end of the year, the lender will send out a 1099-C for the amount that they have written off. The 1099-C will show that amount as income in which the home owner may or may not be responsible for paying. The Mortgage Debt Relief Act of 2007 protects many homeowners that have completed a short sale. This is not intended as tax advice. You should consult with your CPA for your individual case.

At the end of the year, the lender will send out a 1099-A for the amount that they have written off. The 1099-A will show that amount as income in which the home owner may or may not be responsible for paying. Insolvency may be an option to have the amount forgiven.

This is not intended as tax advice. You should consult with your CPA for your individual case.

Employment –Current Position

Your employer will only see late payments and an account that has been settled. This looks much more responsible to your employer than allowing a foreclosure to take place.

Employers have the right to check the credit of all employees who are in sensitive positions. In some positions, a foreclosure may be grounds for dismissal.

Employment-Future Position

Your employer will only see late payments and an account that has been settled. This looks much more responsible to your employer than allowing a foreclosure to take place.

Many employers require a credit report and background check on all job applicants. A foreclosure may keep you from getting that “dream” job in the future.