Foreclosure vs. Short Sale — Homeowner Consequences

PRIMARY ISSUE	FORECLOSURE	SUCCESSFUL SHORT SALE
Current Employment	Employers currently have the right to check employee’s credit, and foreclosure can be grounds for reassignment or termination for sensitive positions.	A short sale currently should be reported on a credit report as “paid in full for less than balance owed” and is therefore less likely to challenge employment.
Future Employment	Many employers are currently checking applicant’s credit, and foreclosure is one of the most severe credit items.	A short sale currently should be reported on a credit report as “paid in full for less than balance owed” and is therefore less likely to challenge employment.
Credit Score/Credit History	Foreclosure on record can lower a credit score 250 to 300 points, and will typically affect a score for over 3 years.    Foreclosure will currently remain on public record for 10 or more years.	Late payments on a mortgage will show, and after the short sale the report should be “paid in full for less than full balance”.  While late payments will lower a credit score (150+ Points/12 to 18 Months), it will almost always be less than a foreclosure. Short sale currently not reported on credit history as Short Sale.  Current reporting is “account paid in full for less than the full balance)
Future Mortgages / Loans	On any future 1003 application for a loan a prospective borrower will have to answer “YES” to: “Have you had a property foreclosed upon or given a title or deed in lieu thereof in the last 7 years?”  This will increase interest rates and decrease chance of getting the loan	There is currently no similar declaration, disclosure or question on the 1003 application regarding short sales.
Deficiency Judgment (*Note: This is a complicated subject that requires understanding of ALL Loans on the property, and whether those loans are purchase money loans, plus other information)	In 100% of foreclosures (except in states where there is no deficiency) the bank has a right to pursue a deficiency judgment.	In some successful short sales it is possible that the lender will give up the right to pursue a deficiency judgment against the homeowner.
Deficiency Judgment Amount (*See Note Above)  Also see HAFA Directives	In foreclosure a home will go through the REO process if it fails to sell at auction. This will often result in a lower price and a higher deficiency judgment.	In a properly managed short sale the home is sold much closer to market value, which is often better than an REO price, resulting in a lower deficiency judgment.
Security Clearances	Foreclosures can challenge security clearances causing them to be revoked resulting in termination.	A short sale by itself currently does not challenge most security clearances.
Future Fannie Mae Loan Primary Residence (* = Investor/Non Primary Residence)	An owner who loses a home to foreclosure is currently ineligible for a Fannie Mae backed mortgage for 5 years (*7 Years for Non Primary).	A homeowner who successfully negotiates a short sale will currently be eligible for a Fannie Mae backed loan in 2 years (*2 Years for Non Primary).

We assume no responsibility nor guarantee the accuracy of these statements. We are not engaged in the practice of law or accounting. We do not provide legal or financial advice. We are not lawyers or accountants. We are licensed Real Estate Brokers and/or Licensed Real Estate Salespersons. The point of this page is to encourage others to engage with licensed professionals to make wise choices during these difficult times, and to understand and think about the fact that there are clear differences between a short sale vs. a forclosure.