PURCHASING A HOME IN THE FUTURE…

• Fannie Mae Insured Loans for Primary Residences - Foreclosure requires a 5 year wait before purchasing again vs. a 2 year wait if you sold through a short sale.
• Fannie Mae Insured Loand for Non-Primary Residences – Foreclosure requires a 7 year wait and short sale again will only require a 2 year wait.
• Future Loan Applications – On any 1003 application the borrower who has a foreclosure will have to mark “YES” to the questions “Have you had a property foreclosed upon or given title or deed in lieu thereof in the last 7 years?”, yet a borrower who has done a short sale will not have to answer yes to this question.

CREDIT HISTORY AND CREDIT SCORE

• Credit scores can be lowered anywhere from 250 to over 300 points with a foreclosure and will typically affect your credit score for over 3 years.  With a short sale only late payments will show and after sale the mortage will be reported as paid or negotiated.  The short sale’s affect can be as little as 50 points and can be as brief as 12 to 18 months.
• Credit history for foreclosure will remain as a public record on your credit history for 10 years or more.  A short sale is not reported on a credit history, typicall it shows the mortgage was “paid in full, settled.”

EMPLOYMENT

• SECURITY CLEARANCE – If you have a security clearance, a foreclosure can result in a revokation of your clearance, where typcially a short sale on its own does not challenge a security clearance.
• Your current employment can be affected if your employer checks your credit regularly.
• Many employers are requiring credit checks when hiring for new positions.  A foreclosure could challenge future employment opportunities.

DEFICIENCY JUDGEMENTS

• In 100% of foreclosures in Nevada the bank has the right to pursue a deficiency judgement.  With a short sale the lender often agrees in writing to give up the right to pursue a deficiency judgement.
• With foreclosure the price the home sells for after the bank gets it back through the foreclosure process is often significantly less then the proceeds they would receive in a short sale.  Thus the deficiency balance is typically much higher with a foreclosure than with a short sale.   

There is a common misconception that foreclosure and shortsale are equal, but as you can see the truth is that the consequences of a short sale can be more favorable for homeowners.

If you or someone you know if facing foreclosure please contact me and I can help you understand the options available to you and give you referrals to others who can help.

In a short sale the mortgage holders are increasingly requiring borrowers to sign a promissory note, a written promise to pay back all or a portion of the debt, as a condition of the short sale approval.  Increasingly mortgage holders are asking sellers to sign a promissory note or retaining their right to pursue a deficiency. 

 In many states lenders have the right to come after borrowers for unpaid mortgage debt from a foreclosure or short sale, seeking a deficiency judgment.  Many times it is the second mortgage holder who will pursue the deficiency as the first may have been satisfied through the short sale.

 Whether or not a mortgage holder will pursue the borrower can depend on (1) their agreement with the investor or servicer, (2) what is allowed by State law,  or (3) if the return outweighs the potential return.  In addition, if there isn’t a true financial hardship that is when the mortgage holder might be more inclined to try to collect the unpaid balance.

In Nevada, NRS 40.455 gives creditor 6 months from the date of foreclosure or trustee’s sale to request a hearing and determine if a deficiency judgment is owed the creditor.

As a REALTOR it is outside of my area of expertise to advise a client regarding a promissory note or whether or not they could get hit with a deficiency judgment in the future.  I strongly advise anyone who is faced with a short sale or foreclosure to consult an attorney before making any decisions.

Please keep in mind that in order to complete a short sale you will need a TEAM of professionals including an experience REALTOR, a CPA and an attorney.  Each of these team members will play a critical role in assisting you.