Homeowner Consequences for a Successful Short Sale Vs. a Foreclosure

I have written previous articles defining short sales and foreclosures.  I will now compare the consequences to a homeowner of a foreclosure versus those of a successful short sale.

Future Fannie Mae Loan–Primary Residence

•  A homeowner who loses a home to foreclosure won’t be eligible for a Fannie Mae-backed mortgage for 5 years.
• A homeowner who successfully negotiates and closes a short sale will be eligible for a Fannie Mae-backed mortgage after only 2 years. 

Future Loan with any Mortgage Company

• On any future 1003 application, a prospective borrower will have to answer YES to question C in Section VIII of the standard 1003 which asks, “Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?”.  This will affect future rates.
• There is no similar declaration or question regarding a short sale.

Credit Score

• With a foreclosure, a person’s credit score may be lowered anywhere from 250 to over 300 points.  Typically, this will affect the score for over 3 years.  
• With a short sale, only late payments on mortgage will show.  After the sale goes through, the mortgage will be reported as paid or negotiated.  This will lower the credit score by as little as 50 points if all other payments are being made.  A short sale’s effect 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 10 years or more.
• A short sale is not reported on a credit history.  There is no specific reporting item for ‘short sale’.  The loan is typically reported ‘paid in full, settled’.  

As you can see, it’s better to have a short sale than a foreclosure.  If you have any questions regarding short sales or foreclosures, please contact me at steven@stevenhong.com.  I will be glad to help you.

A Brief Explanation of Foreclosures

These days, you can’t read the headlines without noticing that there are many foreclosed homes around the country.   Since it is so prevalent, we thought it would be best to offer a brief explanation of how the foreclosure process works.  First of all, a little clarification.  ”In foreclosure” is the process that leads up to being foreclosed.   In addition, we are offering an outline of the process, and the actual timeline will vary from bank to bank.  

As you know, there are monthly mortgage payments when you buy a house.  If you miss a month, you will get a notice reminding you that you missed a payment.  You will get a similar notice if you miss the next month as well.  If you miss another month, you’ll receive a stern notice.  The fourth or fifth month missed will net you a packet of legal documents that explain the foreclosure process to you.  You will also receive a notice of a Sheriff’s sale  that will take place two to three months out.  The bank that is owns your mortgage will most likely buy your house in the Sheriff’s sale.

Let’s break away from the timeline for a minute so I can explain something else.  Some people who’ve missed a month or two believe that if they resume their payments, they are no longer in the foreclosure process.  This is incorrect.  If you miss one payment, you are in the process.  The only way to get out is to be paid up in full.  Otherwise, you are still in the process of foreclosure.  Ok.  Back to the timeline.

After the Sheriff’s sale, you have a Right to Redemption period that lasts six months.  In the Right to Redemption period, if you repay your mortgage in full, then you get your house back.  Chances are, if you’ve missed a payment or two, you won’t be able to pay off your mortgage in full.  So, when the Right to Redemption period is over, and the mortgage hasn’t been repaid in full, the home is formally foreclosed.  

It helps to have an agent guide you in this process.  If you would like more information, please contact me at steven@stevenhong.com

Foreclosure Bargains??

Everybody wants a bargain. Everybody knows foreclosures are bargains. Are they? In this article, we’ll take a look at what happens with a foreclosure. Being in the Minneapolis area, this information is more pertinent to the Minneapolis and St. Paul area houses, although it might apply to other areas as well.

But first, here is some background about foreclosures. Read more