Posted June 22, 2009
This is an all-to-common question being asked these days. To keep things simple, we won't go into all the details of
these transactions; but rather give you a simple explanation of the differences in a table format.
>A short sale is
when a homeowner is trying to sell his or her home for less than the amount owed on the loan. This type of transaction
requires bank approval and there are certain guidelines and pre-requisites a bank will ask for prior to s short sale
approval.
A foreclosure occurs when the lender
takes over the property from the previous owner. A court-ordered sale is required prior to the foreclosure and at this sale if no buyer
comes forward who is willing to pay the minimum bid for the property, then the lender takes possesion and the property
is foreclosed on.
The following breakdown is courtesy of Brian Bomba from the Brian Bomba Group out of Chicago IllInois
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Issue
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Foreclosure
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Short Sale
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| 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 2 years |
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| 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 2 years. |
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| Future Loan with any Mortgage Company |
On any future loan application, a prospective borrower will have to answer YES to question C in Section VII of the standard 1003 that asks “Have you had property foreclosed upon or given title or deed in lieu thereof of the last 7 years?” This will affect future rates. |
There is no similar declaration or question regarding a short sale. |
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| 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 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 12 to 18 months. |
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| Credit History |
Foreclosure will remain as a public record on a persons 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.” |
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| 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 CIS, Security, or any other position that requires a security clearance will be revoked and position could be terminated. |
A Short Sale, on its own,does not challenge most security clearances. |
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| 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, can be grounds for immediate reassignment or termination |
A Short Sale is not reported on a credit report and is therefore, not a challenge to employment. |
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| 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. |
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| 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 pursue deficiency judgment against the homeowner. |
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| 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 sell 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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For more information on foreclosure and short sale properties available in the Sarasota - Bradenton _ Venice area of Florida, you may want to contact Janet Dugan, a Longboat Key real estate specialist. Other specialists include Brian Ward,
a Bradenton real estate expert, Judie Berger, who specializes in Sarasota & Siesta Key real estate, Andree Huffine, Sarasota homes for sale specialist in foreclosures and short-sales
and Bob Henley, a Sarasota and Osprey real estate specialist.
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