Comparing Consequences: Short Sale and Foreclosure
Challenge: Buy a primary residence with a loan.
After Forclosure: Probably not for about 5 to 7 years.
After Short Sale: More likely 2 years.
Challenge: Borrow to purchase an investment property.
After Foreclosure: You’ll be waiting 7 years before you can do this.
After Short Sale: 2 Years and you’re golden.
Challenge: Borrow money from anyone other than Fannie Mae to purchase a property.
After Foreclosure: Applications ask if you’ve foreclosed. By law, you have to disclose.
After Short Sale: No applications will ask if you have ever sold a house short of what you owe.
Challenge: Maintain Credit Score
After Foreclosure: You’ll be affected by 250 to 300 points for roughly 3 years.
After Short Sale: When you close a short sale, they report the debt as paid for less. This is not as derogatory as a foreclosure, and may only drop your score by about 50 points for a year to a year and a half.
Speak to a debt expert online to find out which route out of the red is going to be the best one for you to take.
Challenge: Sparkling clean credit history
After Foreclosure: This will remain on your credit report for 10 years or more.
After Short Sale: Not reported. They do not report “Short Sale” on credit reports. It will be reported as Paid or Settled.
Challenge: Get a job in the military or other highly secure position in corporate America.
After Foreclosure: Not likely. You blew it dude. Now you have a history of bailing out.
After Short Sale: No problem. Won’t show up on a background check.
Challenge: Stay employed.
After Foreclosure: Disclose that you foreclosed on your property and your employer may catch wind of it, which could lead to termination, especially if you’re in a position that is sensitive to the company.
After Short Sale: Not reported on your credit, so they won’t have a clue.
Challenge: Get a job.
After Foreclosure: Employers can check your credit, and challenge your potential employment due to this type of derogatory mark on your history.
After Short Sale: Not Reported. You’re hired!
Challenge: Avoid a deficiency judgment.
After Foreclosure: If you live in a state that is a non-deficiency state, you may be safe, but if you don’t, you may be on the hook for the difference of what the house brings at auction, and what you originally agreed to pay.
After Short Sale: No deficiency, depending on the type of loan. Part of the short sale agreement typically releases you from all liability.
Challenge: Minimize the amount of the deficiency.
After Foreclosure: The cost of foreclosure increases the amount you’ll be deficient. If your home forecloses, you could end up being on the hook for far more than if you sell short.
After Short Sale: Short sales, unlike bank owned properties, sell closer to market value, thereby minimizing the amount that you would be deficient.