What Is A Short Sale?
A short sale occurs when the bank or lender holding the note on a mortgage agrees to sell the home for less than what is actually owed on it. Sounds simple but, it's not.
If you are currently behind on your house payments or underwater on your mortgage, you should consider talking with a short sale specialist about selling your home as a short sale. As a Certified Distressed Property Expert, (CDPE), Janet Owens can help you navigate the slippery slope to avoid foreclosure.
It is critical that the homeowner seeking short sale approval work closely with a real estate agent proficient in the short sale process, preferably one that is certified in short sales. There are several steps the homeowner must take in order to be allowed to sell the home through the short sale process. A real estate agent that has short sale experience can help navigate the homeowner through this process, and hopefully reach a successfully negotiated short sale.
Short Sale vs. Foreclosure
Future Fannie Mae Loan - Primary Residence
A homeowner who succeeds in negotiating and closing a short sale will be qualified for a Fannie Mae backed loan two years after the sale.
A homeowner who loses a home due to foreclosure will not be eligible for a Fannie Mae backed loan for a five year period.
Future Fannie Mae Loan - Non Primary
An investor who succeeds in negotiating and closing a short sale will be qualified for a Fannie Mae backed investment mortgage two years after the sale.
If the investor is foreclosed on, he or she is ineligible for a Fannie Mae backed investment mortgage for a seven year period.
Future Loan with any Mortgage Company
As of now, there are no declarations or questions regarding a short sale that a homeowner must state.
With a foreclosure, on any future 1003 application, the perspective borrower will have to answer yes to the question, "Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?" This will affect future rates.
With a successful short sale, only the late payments on mortgage will be reported on a credit score. After sale mortgage will show as either paid or negotiated. Credit scores are affected by short sales for 12 to 18 months.
Credit scores may be lowered by a foreclosure anywhere from 250 to more than 300 points. Credit scores are generally affected by foreclosure for three or more years.
A credit history report will not disclose a short sale. Typically, the loan is reported as “paid in full, settled”.
A foreclosure will be reported as a public record on an individual’s credit history for at least 10 years.
Typically, a short sale will not challenge most security clearances.
A foreclosure will challenge security clearances. Aside from a conviction of a felony or serious misdemeanor, a foreclosure is one of the most challenging issues against a security clearance. Often, any individual that holds a position of employment that requires security clearance will have that clearance withdrawn and the position terminated.
Because a short sale is not shown on a credit report, it isn’t a challenge to employment.
In many cases, a foreclosure is reason for reassignment or termination. Employers have the right to check the credit of employees in sensitive positions.
Because a short sale is not shown on a credit report, it isn’t a challenge to 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 with challenge employment.
Occasionally in short sales, it’s possible to convince the lender to rescind the right to pursue a deficiency judgement against the homeowner.
Aside from those states where there is no deficiency, the bank always has the right to pursue a deficiency judgement.
Deficiency Judgment Amount
In a correctly managed short sale, the property is sold at a price close to market value, and will be better than an REO sale in most cases, resulting in a lower deficiency.
A foreclosure property must go through an REO process if it doesn’t sell at auction. This will typically result in a longer time to sell in a declining market, and ultimately a lower sale price. This can result in a higher deficiency judgement.
For more information regarding the short sale process or to schedule an interview to see if you qualify for a short sale, please feel free to contact Certified Distressed Property Expert, Janet Owens. All information will remain strictly confidential.