Foreclosure or Real Estate Short Sale – Which Option is Right For Me in California?
FORECLOSURE VS. SHORT SALE
| Question | Foreclosure Answer | Short Sale Answer |
| When will I be able to repurchase a home? | A homeowner who loses a home to foreclosure is ineligible for a government backed mortgage for a period of 5 years. | A homeowner who successfully negotiates and closes a short sale will be eligible for a government backed mortgage after only 2 years. |
| When will I be able to get a loan for an investment property, if I short sale or have an investment property foreclosed? | An investor who allows a property to go to foreclosure is ineligible for a government backed investment mortgage for a period of 7 years. | An investor who successfully negotiates and closes a short sale will be eligible for a government backed investment mortgage after only 2 years. |
| How will my credit score be affected? | Score may be lowered anywhere from 250 to over 300 points, over a 3 year period. | Only late payments on mortgage will show and after short sale 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 a brief as 12 to 18 months. |
| How will either a foreclosure or short sale be reported on my credit report? | Foreclosure will remain as a public record on a person’s 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’. The loan is typically reported ‘paid in full, settled’. |
| How will my current and future employment be affected? | Employers have the right and are actively checking the credit regularly of all employees who are in sensitive positions. A foreclosure in many cases is ground for immediate reassignment or termination. | A short sale is not reported on a credit report and is therefore not a challenge to employment. |
| Can my bank come after me for the difference in what the property sold vs. what I owed? | 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 to pursue a deficiency judgment against the homeowner. |
| What is the amount of money my bank may collect from me, if I decide on a foreclosure or short sale? | 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 sale 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. |
