With so many people struggling to pay their mortgages it’s important to know your options. There is a lot of dialogue swirling around the buzz words “foreclosure” and “short sale”, but what do they mean at the most basic level, what are the repercussions to you as a mortgage holder. Please understand that I am not an expert in these things, for expert opinion you would have to talk with your financial representative or an attorney, but for now here is a bit of information about these two options if you can no longer afford the home you are in and need to consider your next step.
Truth be told short selling your home may have fewer, or less severe, repercussions on your credit and other records than a foreclosure.
Foreclosure Consequences
• Affects future mortgage rates for 7 years.
• Lower credit score from 250 to over 300 points; on your credit for over 3 years.
• Stays on your credit history for 10 or more years.
• Difficult to get security (such as military or government) clearance; current clearance revoked and position terminated.
• May face immediate reassignment or termination, if in a sensitive job.
• Can pose a challenge to gaining new employment.
• Lender can pursue a deficiency judgment if legal in your state.
• Higher deficiency judgment than short sale in most cases.
Short Sale Consequences
• Will not, in itself, affect future mortgage rates; late payments will affect future rates
• Lowers credit score about 50 points; on your credit for 12 to 18 months.
• Not reported on a credit history; loan typically reported as ’paid in full, settled.’
• Poses no challenge to most security clearances.
• No challenge to keep currently employment or gain future employment.
• Lender may not pursue deficiency judgment, especially if illegal in your state.
• Lower deficiency judgment than foreclosure in most cases.
The moral of the story is, do not assume that foreclosure is your only option. Talk to your lender or the representative at the bank in which your mortgage is held. They should be inclined to work with you; after all, it’s in everyone’s best interest.
