Issues

Foreclosure

Successful Short Sale

Future Fannie Mae Loan- Primary Residence 1

A homeowner who loses a home to foreclosure is ineligible for a Fannie Mae-backed mortgage for a period of 5 years.

A homeowner who successfully negotiates and closes a short sale will be eligible for a Fannie Mae- backed mortgage after only 2 years.

Future Fannie Mae Loan- Non-Primary2

An investor who allows a property to go to foreclosure is ineligible for a Fannie Mae-backed investment mortgage for a period of 7 years.

There is no similar declaration or question regarding a short sale.

Credit Score

Score may be lowered anywhere from 250 to more than 300 points. Typically will affect a credit score for over 3 years.

Only late payments on a mortgage will show, and after sale, mortgage is normally reported as 'paid as agreed', 'paid as negotiated', or 'settled'. This can lower the score as little as 50 points if all of the other payments are being made. A shore sale's effect can be as brief as 12 to 18 months.

Credit History

Foreclosure will remain as a public record permanently, and on a person's credit history for 10 years or more.

A 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'.

Security Clearance

Foreclosure is the most challenging issue against a security clearance outside a serious misdemeanor or felony conviction. If a client has a foreclosure and is a police officer, in the military, in the CIA, security, or any other position that requires a security clearance, in almost all cases clearance will be revoked and position will be terminated.

On its own, a short sale does not challenge most security clearances.

Current Employment

Employers have the right and are actively checking the credit of all employees who are in sensitive positions. In many cases, a foreclosure is reason for immediate reassignment or termination.

A short sale is not reported on a credit report and therefore not a challenge to employment.

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 will challenge employment.

A short sale is not reported on a credit report and is therefore not a challenge to future employment.

Deficiency Judgment
(Not Applicable in California)

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.

Deficiency Judgment (amount)

In a foreclosure, the home will have to go through an REO process 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.

1 Fannie Mae Announcement 08-16: Michael A. Quinn, Senior Vice President, Single- Family Risk Officer
2 Fannie Mae Announcement 08-16: Michael A. Quinn, Senior Vice President, Single- Family Risk Officer.

Conventional Mortgage

FHA Mortgage

VA Mortgage

Repayment Plan: allows you to make a regular full payment plus a portion of the delinquency each month over a period of months to cure the delinquency.

Repayment Plan: allows you to make a regular full payment plus a portion of the delinquency each month over a period of months to cure the delinquency.

Repayment Plan: allows you to make a regular full payment plus a portion of the delinquency each month over a period of months to cure the delinquency.

Loan Modification: a lender may consider adding the delinquent amount to your principal balance, which may reinstate your loan. A change in interest rate and/or the loan term may also be considered.

Loan Modification: the delinquency amount is added to your principal balance, which may result in fully reinstating your loan.  A change in interest rate and/or the loan term may also be considered. Late, foreclosure, attorney fees may be waived.

Re-Amortization: the delinquency is added to your loan balance in order to bring your loan current.  The interest rate and terms may be modified.

Forbearance: suspended or partial payments for a short period of time followed by repayment plan, modification, reinstatement, or full pay off. You must prove your hardship is temporary and will resume ability to pay mortgage.

Forbearance: suspended or partial payments for a short period of time followed by repayment plan, modification, reinstatement, or full pay off. You must prove your hardship is temporary and will resume ability to pay mortgage.

Forbearance/Repayment Schedule: allows the repayment of part of the delinquency each month along with your regular mortgage payment. If you are temporarily unable to meet your mortgage payment, suspended or partial payments may be accepted until you have the ability to resume the payment schedule.

Short Sale/Pre foreclosure sale:  allows the borrower to sell the house and use the proceeds to satisfy the mortgage debt even if the proceeds are less than the amount owed.

Partial Claim: your lender may work with you to obtain a one-time payment from the FHA-Insurance Fund to reinstate your loan. You must be at least 4 months delinquent and able to make full mortgage payments. You will execute a promissory note & subordinate mortgage payable to HUD. This note carries no interest & is payable at time of home sale or refinance.

Refunding: if you have the ability to make mortgage payments or will have the ability in the future, but your lender has decided it cannot extend further forbearance or a repayment plan, VA may buy a loan from the lender and take over the service.

Deed-in-lieu of foreclosure:  if you are not eligible or failed at other Loss Mitigation Tools, including a Short Sale, you could voluntarily deed or surrender your property to HUD in exchange for a release from all obligations under the mortgage.

Short Sale/Pre foreclosure sale:  allows the borrower to sell the house and use the proceeds to satisfy the mortgage debt even if the proceeds are less than the amount owed.

Deed –in-lieu of foreclosure: if there are no liens on the property and VA agrees, you will sign legal documents to make VA the owner of your property. VA will have to pay your lender a claim for the difference between the value of your home and the mortgage balance.  If a deed is accepted, you may be released from further liability or asked to repay the government for all or part of the claim VA paid.

Deed-in-lieu of foreclosure:  if you are not eligible or failed at other Loss Mitigation Tools, including a Short Sale, you could voluntarily deed or surrender your property to HUD in exchange for a release from all obligations under the mortgage. There must be no liens on the property.