Issue

Foreclosure

Successful Short Sale

Future FHA Loan – Primary Residence

A homeowner whose home goes into foreclosure will not qualify for an FHA home loan for 5 years.

A homeowner whose home is sold in a short sale will qualify for an FHA loan after only 2 years.

Future FHA Loan –
Non-Primary Residence

An investor whose property goes into Foreclosure will not qualify for an FHA loan for 7 years.

An investor whose property is sold in a short sale will qualify for an FHA loan after only 2 years.

Future Loan by Any Mortgage Company

On any future mortgage application, a buyer must answer YES to the question “Have you had a property foreclosed upon or given title or deed in lieu thereof in the last 7 years?” This will have an affect on future interest rates.

There is no question about whether the buyer has ever done a short sale on mortgage applications.

Credit Score

The homeowner’s credit score can be lowered between 250-300 points as a result of a foreclosure. Generally this decrease will last more than 3 years.

Only late payments on the homeowner’s mortgage will show up on a credit report. After a short sale the mortgage should be shown as ‘Paid’ or
‘Negotiated’. This will only lower the credit score about 50 points, as long as all other payments are made on time. The effect of the Short Sale on the credit score can be as short as 12-18 months.

Credit History

A foreclosure can stay on a homeowner’s credit history for 10 years or longer.

There is no specified term to report a short sale on the homeowner’s credit history. The mortgage status is frequently reported as ‘Paid in full, settled’.

Security Clearances

It can be extremely difficult for an individual to get security clearance approval when applying for such jobs as police officer, military, CIA, Security. Having a foreclosure may affect job status.

A short sale, on its own merits, may not challenge most security clearances.

Current Employment

Employers can and do check credit status of employees in sensitive positions. A foreclosure can adversely affect job security.

A short sale is generally not reported n a credit report and should not pose a challenge to employment.

Deficiency Judgment

Depending on the type of loan at the time of foreclosure, some banks can go after more money from the homeowner to pay more of the mortgage deficit in a ‘deficiency judgment’.

Depending on the type of loan at the time of short sale, the bank may try to get more money from the homeowner, but many times it is possible to negotiate no promissory note or deficiency judgment.

Deficiency Judgment (amount)

Once a property is foreclosed, the bank will try to sell it through a REALTOR® or in an auction. If the sale price is lower than the mortgage due, the bank will try to get a higher deficiency judgment from the homeowner.

In a professionally negotiated short sale, the sale price should be close to actual market value. The proceeds to the bank would therefore result in a lower deficiency for the homeowner