SHORT SALE VS. FORECLOSURE IN Virginia

Here are some of the differences between how a homeowner is affected by a short sale vs. a foreclosure in Virginia.

Credit Score

Successful Short Sale
The credit report will only show late payment on the mortgage. After the short sale is finalized, it will be reported as having been paid/negotiated/settled for less than the full amount due – or some similar working. This will reduce the score around 50 points as long as all the other payments are made. The effect of this is as short as 12 - 18 months.

Foreclosure
The credit score could fall by as many as 300 points. It takes three years for the score to recover, and it will be on your report for 7-10 years. This also shows on your public record in the same way as a bankruptcy.

Credit History

A successful Short Sale is not added to your credit history.There is no reported item for ‘short sale.’ It will appear in the same way as a credit card charge, and the loan will be reported as paid in full, settled, or similar words.

Foreclosure
A foreclosure stays public record on your credit history for 7-10 years.

Future Home Purchase as Primary Residence – Fannie Mae Loan (effective 5/28/08)

Successful Short Sale
Someone who successfully finalizes a short sale will be eligible for a Fannie Mae backed mortgage after just 2 years.

Foreclosure
Someone who loses their home to a foreclosure is not eligible for a Fannie Mae backed mortgage for 5 years.

Future Home Purchase as Non Primary Residence – Fannie Mae Loan (effective 5/28/08)

Successful Short Sale
An investor who finalizes a short sale will be eligible for a Fannie Mae backed investment mortgage after just 2 years.

Foreclosure
An investor who lets propertygo into foreclosure is not eligible for a Fannie Mae backed investment mortgage for 7 years.

Future Loan with any Mortgage Company

Successful Short Sale
There are no comparable declarations or questions concerning a short sale.

Foreclosure
On any future 1003 loan application, a potential borrower is required 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 7 years?”This affects future rates.

Deficiency Judgment

Successful Short Sale
In successful short sales, you cantalk the lender intogiving up the right to pursue a deficiency judgment against the homeowner.

Foreclosure
In 100% of foreclosures (except in those states where there is no deficiency), the lendercan pursue a deficiency judgment.

Deficiency Judgment (Amount)

Successful Short Sale
In a well-managed short sale, the property is sold at a close to market value price and in most cases thisis better than an REO sale resulting in a lower deficiency.

Foreclosure
The property has to go through the REO process if it does not sell at auction in the case of a foreclosure.Mostly, this results in a lower sales price with a longer time period to sell in a declining market.This results in a higher possible deficiency judgment.

Taxes

Successful Short Sale
The lender will file a 1099-C at year-end for the written off amount.The 1099-C shows the amount as income in which the homeowner may or may not be responsible for paying.The Mortgage Debt Relief Act of 2007 might protect the homeowner that completed the short sale by not requiring them to pay on the deficiency.

Foreclosure
The lender will file a 1099-A at year-end for the written off amount.This 1099-A shows the amount as income in which the homeowner may or may not be responsible for paying.

Current Employment

Successful Short Sale
Short sales do not show up on credit reports, and are not public records, so do not present a challenge to employment.The employer only sees late payments and a settled account.

Foreclosure
Employers actively check the credit score of their employees in sensitive positions. In most cases, a foreclosure is grounds for immediate reassignment or termination.

Future Employment

Successful Short Sale
Short sales do not show up on credit reports, and are not public records, so do not present a challenge to employment. The employer only sees late payments and a settled account.

Foreclosure
Employers actively check the credit score of their employees in sensitive positions. In most cases, a foreclosure is grounds for immediate reassignment or termination.

Security Clearances

Successful Short Sale
On its own, a short saledoes not challenge most security clearances.

Foreclosure
Foreclosure can be the challenging issue against a security clearance outside of a conviction or 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, the clearance will be revoked and the position will be terminated in almost all cases.

NOTE:The information provided is for strictly informational purposes only.It can serve as a guide to further explore your options and learn how a short sale or foreclosure can affect you.We are not attorneys or tax experts.We suggest you consult an attorney, CPA or tax advisor before considering a short sale, foreclosure, or deed-in-lieu-of-foreclosure.