Santa Clarita Foreclosures vs Short Sale
Major Differences:
- With a foreclosure, homeowner becomes ineligible for a Fannie Mae-backed mortage for a period of up to 7 years with some exceptions. With a short sale, the time period is 2 years although there is a 90% maximum loan to value ratio for that time with extenuating circumstances and a changing loan to value ratio over 7 years without extenuating circumstances. Applies to primary and non primary residences.
- For a loan with any mortgage company: Must answer “yes” to question “have you had property foreclosed upon or given title or deed-in-lieu thereof in the last 7 years” and this will affect future interest rates. No such question about a short sale. For a FHA loan: if homeowner was current at the close of short sale you may apply for FHA immediately. If not, then must wait three years.
- Credit score with foreclosure can be lowered anywhere between 250 to over 300 points and will affect the score for over 3 years. In a short sale, only late payments on the mortgage will show and after the sale the mortgage is normally reported as “paid as agreed”. This can lower the score as little as 50 points it all other payments are being made. Effect can be as brief as 12 to 18 months.
- Credit history in a foreclosure will remain as a public record on a person’s credit history for 7 years and sometimes more. A short sale is NOT reported on a person’s credit history. In most cases a loan is typically reported “paid in full, settled” or “paid as negotiated”.
- Security Clearances – for those with security clearances a foreclosure is a very challenging issue. Police, or security officer in the military, or those with security clearances for government work in almost all cases, will find their clearances revoked and positions terminated. On it’s own, a short sale does not challenge most security clearances.
- 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 is therefore not a challenge to employment.
- Future empolyment – 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 and therefore is not a challenge to employment.
- Deficiency judgments are not levied in California on purchase money loans for either foreclosure or short sales. If not a purchase money loan negotiation is possible for a non deficiency judgement on a short sale. This is not an option if the property is foreclosed upon.
- If the property is foreclosed upon, the amount of deficiency for the bank is usually considerably higher than that for a short sale, hence a higher deficiency judgement for the borrower if the home is foreclosed upon.
All items itemized above are subject to change and government changes in regulation. Always check with your Certified Distressed Property Expert, and contact your attorney and accountant to understand the extent of your liabilities in either case. Please remember, that all deficiencies are reported to the IRS and are counted as income. Currently as of this writing, California and the Federal government allow for the deficiency income to be waived. However, you MUST report it as income whether you receive a 1099 or not. Speak to your accountant as to how to handle these items.