Future Fannie May Loan — Primary Residence:  A homeowner how loses a home to foreclosure is ineligible for a Fannie Mae backed mortgage for a period of five years.  A homeowner who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed mortgage only after two years.

Future Fannie Mae Loan — Non-Primary:  An investor who allows a property to go into foreclosure is ineligible for a Fannie Mae backed investment mortgage for a period of seven years.  An investor who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed investment mortgage after only two years.

Future Loan with Any Mortgage Company:  On any future 1003 loan application, a prospective borrower will have to answer yes to question C in section VIII of the standard 1003 that asks “Have you had a property foreclosed upon or given title or deed in lieu thereof in the last seven years?” this will affect future mortgage rates.

There are no similar declarations or questions regarding a short sale.

Foreclosure Affects Everything! 

Credit Score:  A credit score may be lowered anywhere from 250 to over 300 points.  Typically will affect score for over three years.  Only late payments on a mortgage will show and after a short sale, mortgage will be reported as  paid or negotiated.  This will lower the scores as little as 50 points if all other payments are being made.  A short sale’s affect can be as brief as 12 to 18 months.

Credit History:  Foreclosure will remain as a public record on a person’s credit history for ten years or more.  A short sale is not reported on a credit history.  There is no specific reporting item for a “short sale.  The loan is typically reported as, “paid in full, settled”.

Security Clearances:  Foreclosures is the most challenging issue against a security clearance outside of a conviction of a serious misdemeanor or felony.  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 their positions will be terminated.  A short sale alone does not challenge most security clearances.

Current Employment:  Employers have the right and are actively checking the credit regularly of all employees woe 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 no 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 employment.

Deficiency Judgement:  In 100% of foreclosures (Except in  those states where there is no deficiency), the bank has the right to pursue a deficiency judgement.  in some successful short sales it is possible to convince the lender to give up the right to pursue a deficiency judgement against the homeowner.

An effort is under way in the Senate to renew legislation that spares underwater homeowners from having to pay income tax on mortgage debt forgiven by a lender, one of the chief supporters of the tax-relief provision told a group of politically active REALTORS® during NAR’s Federal Policy Conference in Washington.  On Feb. 5, Sen. Dean Heller (R-Nev.) said he is working with Sen. Debbie Stabenow (D-Mich.) to again extend a provision that Congress renewed for 2014 through 12/31/2016.