Foreclosure vs. Short Sale

There has been a lot of discussion and much confusion about the difference between the potential impacts of a Foreclosure vs. a Short Sale. Below is a reference chart, compliments of the Distressed Property Institute, LLC, that outlines the primary differences. Based on this information, a short sale can be more advantageous than a foreclosure and potentially have less negative impact on future credit, employment, and the ability to purchase a home in the future.

I have been certified by the National Association of Realtors (SFR) , the California Association of Realtors (CHS), as well as the Certified Distressed Property Institute, LLC (CDPE) to provide assistance to homeowners who may be facing foreclosure. Our goal is to help evaluate all of your options to help PREVENT FORECLOSURE.

If you, a friend, or a family member may be in a difficult situation with your existing mortgage, I would welcome the opportunity to provide a COMPLIMENTARY Consultation with absolutely NO OBLIGATION. Call me @ (510) 744-3504 or send me an Email today!

Foreclosure vs. Short Sale

(Homeowner Consequences)

Issue Foreclosure Successful Short Sale
Future Fannie Mae Loan – Primary Residence (effective May 21, 2008) A homeowner who loses a home to Foreclosure is ineligible for a Fannie Mae backed mortgage for a period of 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 Fannie Mae Loan – Non Primary (effective May 21, 2008) An investor who allows a property to go to Foreclosure is ineligible for a Fannie Mae backed mortgage for a period of 7 years. An investor 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 that 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 Score may be lowered anywhere from 250 to over 300 points. Typically will affect score for over 3 years. Only late payments on mortgage will show and after sale mortgage will be reported as paid or negotiated. This will lower the score as little as 50 points if all other payments are being made. A short sale’s affect can be as brief as 12 to 18 months.
Credit History Foreclosure will remain as a public record on a person’s credit for 10 years or more. 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”.
Security Clearances Foreclosure is the most challenging issue against a security clearance outside of a conviction of 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 in almost all cases clearance will be revoked and position will be terminated. A short sale on its own does not challenge most security clearances.
Current Employment Employers have the right and are actively checking the credit regularly of all employees who are in sensitive positions. A foreclosure in many cases is ground for immediate reassignment or termination. A short sale is not reported on a credit report and is therefore not a challenge to employment.
Future Employment Many employers are requiring credit checks on all job applicants. A foreclosure is one of the most detrimental credit items an applicant can have and in most cases will challenge employment. A short sale is not reported on a credit report and is therefore not a challenge to employment.
Deficiency Judgment In 100% of foreclosures (except in those states where there is no deficiency) the bank has the right to pursue a deficiency judgement. In some successful short sales it is possible to convince the lender to give up the right to pursuit a deficiency judgment against the homeowner.
Deficiency Judgment (amount) In a foreclosure the home will have to go through an REO process if it does not sell at auction. In most cases, this will result in a lower sales price and longer time to sell in a declining market. This will result in a higher possibly deficiency judgement. In a properly managed short sale the home is sold at a price that should be close to market value and in almost all cases will be better than an REO sale resulting in a lower deficiency.

The Distressed Property Institute, LLC assumes no responsibility nor guarantees the accuracy of this document. The Distressed Property Institute, LLC is not engaged in the practice of law nor give legal advice.

What is an “escrow”…?

When I first heard this term as a kid, I thought an “escrow” was a bird…? I mean, the word sounds like a bird… Not quite a crow, perhaps a more beautiful looking crow… 😉

So what is an escrow…? Based on, escrow is defined as:

-noun, a contract, deed, bond, or other written agreement deposited with a third person, by whom it is to be delivered to the grantee or promisee on the fulfillment of some condition.

In regards to a real estate transaction, the term “escrow” is used to describe the entire process from the moment an offer and deposit from a buyer is accepted by a seller all the way to the day the property officially changes hands to the new owner. So, it is not a bird after all…

If you are a first time home buyer, this article may be a good introduction for you. If you have purchased or sold property in the past, hopefully this will be a good refresher.

First off, who are all the primary entities involved:

  • Buyer
  • Seller
  • Neutral Third Party (typically an escrow officer from a title company)

Let’s use single family home as an example. The buyer, usually represented by a Real Estate Agent, finds a house they would like to purchase. On behalf of the buyer, the Real Estate Agent would present an offer to the current home owner (Seller) along with a deposit. When the offer is accepted by the Seller, the signed contract along with the deposit is put into “escrow” to the Neutral Third Party (Title Company). From there, the escrow begins!

Key steps that occur during the escrow:

  • Title Company to secure Buyer’s deposit
  • Title Company to order a Preliminary Title Report (to verify there are no issues with the current title on record)
  • Disclosures are reviewed by Buyers
  • All appropriate inspections are ordered and performed
  • Applicable repairs are made (if applicable)
  • The Buyer’s loan is processed (if applicable)
  • All contingencies are removed (these are conditions that either the buyer or seller may request in writing)
  • The Buyer’s loan is funded (bank provides check or wires money), the Seller and their previous mortgage (if applicable) are paid
  • The transfer of ownership is recorded at the local city or county’s recorder’s office
  • The escrow is officially closed as ownership has transferred from the Buyer to the Seller
  • The keys are presented to the Buyer!!! :)

Role of your Real Estate Professional:

  • Consistently look out for your best interests
  • Advise on what inspections should be ordered and performed
  • Perform a thorough visual inspection of the property and provide a report
  • Works closely with escrow officer and your lender (for the Buyer) to ensure a smooth transaction
  • Ensure you are presented with all disclosures and takes the time to explain them (there are many) and answer any/all questions you may have
  • Keep you informed of the latest status on a regular basis
  • Act as your proponent and advocate if any problems should arise
  • Make themselves available for any questions or concerns you may have
  • Be there for you after the escrow closes for any future questions, concerns, or assistance!

These are just the basic steps that are involved in an escrow and a real estate transaction. There are many additional tasks that need to be performed to ensure a smooth and expeditious closing of escrow. Navigating through this process takes the knowledge, attention to detail, and customer service from an experienced Real Estate team.

If you are looking to purchase a property, I would welcome the opportunity to be your Trusted Real Estate Professional! Allow our team to help you with every step of the transaction.

Call me @ (510) 744-3504 or send me an Email today!

Article By: Joel M. Padama

Pre-approved vs. Pre-qualified, what is the difference…?

Experienced Real Estate professionals advise first-time home buyers that it is critical to obtain a loan pre-approval before shopping for a home. For many first time home buyers, this can be a little confusing… There is a big difference between having a loan pre-approval letter in hand vs. getting pre-qualified for a loan.

When you get pre-qualified for a loan, the information requested by your lending professional is very limited. Based on the responses you provide, they can provide you with a “guideline” of what you “may” be qualified to purchase. While this is a great first step, this will not put you in the best position when making an offer on a house…

When you get pre-approved for a loan, your lending professional will be able to tell you an exact dollar amount that you will qualify for based on your specific financial situation. This process is much more comprehensive than a loan pre-qualification as you will be requested to provide proof of employment, income, assets, as well as provide authorization to run a credit report. But, once complete, you will have a pre-approval letter in hand to submit with your offer that will show the seller you are a ready, willing, and serious buyer.

Only look for homes that fit your criteria
Once you determine the price range you qualify for, your real estate professional can set you up for automatic email listings or keep you apprised when a home comes on the market that meets your criteria. In addition to price, you should ensure your real estate professional knows all the “must haves” and “have not’s” of your ideal home. This will allow them to narrow down their search parameters and only show you homes that fit your needs and wants. Of course, you always have the right to modify these parameters, so make sure to effectively communicate with them. This will save a lot of time as you will only be checking out homes that you can afford to purchase instead of falling in love with a home that is really out of your price range…

Present a strong and solid offer to purchase your first home
You FOUND IT!!! That perfect first home! Now, it is time for you and your real estate professional to submit a solid and strong offer that sets you apart from all other potential offers for that home. This is where an experienced real estate professional is very beneficial to you as they know all the right things to present a comprehensive offer that the seller will accept!

A smoother and faster closing period
The seller has accepted your offer and you are now in contract (escrow). Since you have your loan pre-approval out of the way, the lender can speed up the entire processing procedure. They will be able to order the home appraisal right away and expedite the underwriting process. This will allow you to focus on the many other important aspects of purchasing a home. For example, you can now focus on all the appropriate inspections to ensure you buying a solid house. Working with your real estate professional, it is advisable to order a roof inspection, a termite inspection, and a complete home inspection. These are just a few of the general inspections to order, so make sure to check with your real estate profession for any other specific inspections that will be beneficial to your transaction.

This will put you in the driver’s seat! As you go through the escrow process, you can release contingencies as you and your real estate processional see fit. Then, once you are ready to fully commit, you can proceed to purchase your home, record ownership, and get your keys to your first home!



Article By: Joel M. Padama