Consequences of Short Sale vs Foreclosure

There are several areas where you will be affected quite differently if your home goes to foreclosure rather than having a successful short sale. They are quite stark and worth reviewing carefully:

Future Loan with any Mortgage Company

Foreclosure - you must answer Yes to the question "Have you had a property foreclosed upon in the last 7 years?" This will affect future loan rates.

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

Credit Score

Foreclosure - Your score may be lowered anywhere from 250 to over 300 points. This will typically affect your score for over 3 years.

Short Sale - Primary impact to your credit score generally comes from the late payments notices that have been sent to the credit bureaus. How the short sale is recorded can also have an affect. A short sale's affect can be as brief as 12 to 18 months.

Credit History

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

Short Sale - Short sales are not reported on a credit history. The loan is typically reported as "paid in full" or "settled".

Security Clearances

Foreclosure - The most challenging issue against a security clearance outside of a serious misdemeanor or felony. Depending on the position, can be grounds for revocation of the clearance or in some cases even termination of the position.

Short Sale - A short sale on its own does not challenge most securtity clearances.

Employment

Foreclosure - Employers have the right to check credit for current or prospective employees. A foreclosure can be grounds for reassignment or termination or not being hired, depending on the employer.

Short Sale - A short sale is not reported in a credit report and is therefore not a challenge to employment.

Deficiency Judgment

Foreclosure - In 100% of foreclosures (except in those states where there is no deficiency) the bank has the right to pursue a deficiency judgment.

Short Sale - 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.