The Upside of Short Sales

ISSUE	FORECLOSURE	SUCCESSFUL SHORT SALE
Future Fannie Mae Loan Primary Residence	A homeowner who loses a home to foreclosure is ineligible for a Fannie Mae mortgage for 5 years.	A homeowner who successfully negotiates and closes a short sale will be eligible for a Fannie Mae mortgage after only 2 years.
Future Fannie Mae Loan Non Primary	An investor who allows a property to go to foreclosure is ineligible for a Fannie Mae mortgage for a period of 7 years.	An investor who successfully negotiates and closes a short sale will be eligible for a Fannie Mae mortgage after only 2 years.
Future Loan with any Mortgage Company	On any future 1003 application, a prospective borrower must answer YES to question C in Section VIII of the standard 1003 that asks, “Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?” This can affect the rate or ability to qualify for future loans.	There is no similar declaration or question regarding a short sale.
Credit Score	The credit score may be lowered anywhere from 250 to over 300 points. A foreclosure typically affects the score for over 3 years.	After a short sale the score is lowered as little as 50 points if all other payments are made on time. The negative effect can be only 12 to 18 months.
Credit History	Foreclosure remains as a public record on a person's credit history for 10 years or more.	A short sale is not reported on a credit history. The loan is typically reported as “paid in full, settled”.
Security Clearances	Foreclosure is the most challenging issue for a security clearance outside of a conviction of a serious misdemeanor or felony. A foreclosure for someone that is a police officer, in the CIA, the military, or in other security-sensitive positions means that in many cases, clearance is revoked and the position is terminated.	A short sale on its own 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. A foreclosure in many cases is grounds for immediate reassignment or termination.	A short sale is not reported on a credit report and is therefore not a challenge to employment.
Future Employment	Many employers are requiring credit checks for 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 employment.
Deficiency Judgment	The law of most states allows junior mortgages to recover the unpaid deficiency amount after the foreclosure of the senior mortgage.	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, if it does not sell at auction, the home must go through an REO process. In most cases, an REO has a lower sales price and a longer time to sell in a declining market. This can result in a higher deficiency judgment.	In a well-managed short sale, the home should be sold at a price close to market value, and in almost all cases, higher than an REO sale price. The result can be a lower deficiency judgment.

Source: The Distressed Property Institute