Foreclosure is Worse Than a Short Sale for Your Credit Record

by Isaac Benmergui, Esq on June 13, 2012

Even with all the good news on the upward trend of the Miami real estate market, some homeowners are still under water with their mortgages and facing foreclosure. Many homeowners feel that choosing foreclosure over a short sale or vice versa is a lose/lose scenario and that their credit score will suffer either way and make future homeownership impossible. This is simply not true.

  • A foreclosure can remain on your credit report for 7 to 10 years and lower your credit score 175 to 300 points; a short sale is not a public record and the credit score may only drop by 50 to 100 points. With a short sale, a note may be placed on the credit report, stating that you settled for less than the total amount of the mortgage.
  • If you had a Fannie Mae loan and were foreclosed upon, you won’t be eligible for another Fannie Mae loan for 5 years; if you do a short sale on a Fannie Mae property, you can borrow again in 2 years, depending on your credit score.
  • After foreclosure, you will have to answer “yes” to a past foreclosure question on any loan application with a traditional mortgage lender; there is no question regarding a short sale on a mortgage application.
  • In a foreclosure, the lender could pursue the deficiency amount of the loan; in a short sale, the sales price is usually higher and can lower the deficiency amount, which is also, many times, waived altogether.
  • A foreclosure could affect future employment, and a short sale demonstrates that the employee worked with the lender toward finding a resolution.
  • Foreclosure may compromise security clearances if you have them; a short sale usually would not.

Getting Legal Help

The law offices of Isaac Benmergui can help you with your legal real estate needs, including short sale contracts; call 780-800-2510 or email for more information or to set up an appointment today.


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