As the housing crisis in this country
began to ramp up in 2007, real estate experts
popped up everywhere. On cable news and in newspapers,
these experts were sharing their opinions about the best
solutions for people who were in danger of losing their
home to foreclosure. Often, these expert opinions directly
contradicted one another. Worse yet, many times these
experts were just flat out wrong.
Among the most common, and the most misinformed,
opinions was that a short sale had just the same effect
on a homeowner as a foreclosure. This is not only completely
untrue, but has led many people to have their homes needlessly
foreclosed on, leaving them no options for their financial
This report was created for the sole purpose
of dispelling the Foreclosure vs. Short Sale myth and
to better inform distressed homeowners about the options
that are available to them.
What is a short sale?
Put simply, a short sale is the process by which the bank
allows a distressed homeowner to sell the property for
less than the amount owed on the loan. In todays
market, when property values have dropped well below original
loan values, short sales have become an increasingly popular
option for both homeowners AND the banks. For more info,
see Why Would A Bank Accept A Short Sale?
Why A Short Sale Is
A Better Option Than Foreclosure
Credit Scores When
a homeowner has their home foreclosed on, it typically
affects his or her credit score by between 250-300 points.
This is a catastrophic impact to a credit score and it
happens because the foreclosure is reported DIRECTLY on
a credit report. In a short sale, there is NO standard
code that is reported. Ultimately, the late payments can
have as little as a 50 point impact on your score. In
addition, a foreclosure affects a score for 3 years or
more. In a short sale, the effect usually lasts 12-18
months, depending on delinquency. In fact, it is not uncommon
for someone to be able to get a new home loan virtually
immediately after a short sale if they have remained current
on their payments or if their credit has not been affected
by other debts.
Credit History Because a foreclosure
is specifically reported on a persons credit, by
law it must remain on that persons credit report
for at least 7 years. In a short sale, because there is
no specific reporting code, it is not reported on a persons
Ability to get Future Loans Anyone
who tries to get a home loan has to fill out a 1003 application.
Question C in Section VIII of this form asks the question,
Have you had a property foreclosed upon or given
title or deed-in-lieu thereof in the last 7 years?
Obviously, if a homeowner goes through foreclosure, having
to answer yes to this question means that it is will be
almost impossible to receive a loan for at least 7 years.
In a short sale, there is no such requirement. In fact,
with an FHA loan, a homeowner who goes through a short
sale can receive a new home loan IMMEDIATELY assuming
they were current on their payments and their credit wasnt
affected by other debts. Fannie Mae and Freddie Mac loans
are also available for those who go through short sales
in about 2 years or less, depending on circumstances.
Current and Future Employment
Anyone who has looked for a job in the last 10
years knows that it is more and more common for companies
to run credit checks on potential employees, but in some
cases, employers are also keeping tabs on the credit of
current employees as well. In both cases, employers just
want to make sure that if their employees ever find themselves
in a dire financial situation, it never puts their business
in jeopardy. Because a foreclosure is reported on a credit
report, this is an immediate red flag for current and
future employers. In a short sale, the only thing reported
is late payments or, in
some cases, paid as agreed or paid as
If a homeowner is in the military or holds any other highly
sensitive job that requires an official security clearance,
a foreclosure is second only to a
felony conviction as the most challenging issue in keeping
that status. In most cases, as soon as a foreclosure hits
a persons credit, he or she can be reassigned or
let go from that position and obtaining a new security
clearance is often impossible.
After viewing all the facts, the choice
is crystal clear. There simply is no situation in which
it is better to simply allow a home to be foreclosed on.
As a Certified Distressed Property Expert (CDPE), I am
uniquely qualified to walk you through the short sale
process as well as to give you information about other
foreclosure alternatives that may be available to you.
Call me or visit my website today to set
up your free, confidential consultation. Together, we
will work to make sure that you are able to achieve the
best possible solution for your