Foreclosure Vs. Short Sale—Homeowner Consequences

The following chart explains the pros and cons of a short sale versus a foreclosure. Find answers to the most common questions homeowners ask when weighing the options of a foreclosure versus a short sale. Some real estate pros would say that foreclosure is never an option, but in reality inaction, ignoring, delaying, failure to cooperate with your lender with regards to a short sale or deed in lieu, two other common foreclosure alternatives, is equivalent to agreeing to a foreclosure.



Successful-Short Sale

Future Fannie Mae Loan –
Primary Res

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 i.e. Investor

An investor who allows a property to go to foreclosure is ineligible for a Fannie Mae-backed investment 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 investment mortgage after only 2 years.

Future Loan with any Mortgage Company

On any future application, a prospective borrower will have to answer YES to question C in Section VIII of the standard 1003 form 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 from250 to more than 300 points. Typically will affect a credit score for
3 years.

Only late payments on mortgage will show, and after sale, mortgage is normally reported as ‘paid as agreed’, ‘paid as negotiated’, or ‘settled’.
This can lower the score as little or as high as
50 points if all other Payments are being made. A short sale’s effect can be as brief as 12 to 18 months.

Credit History

Foreclosure will remain as a public record permanently, and on a person’s credit history for 10 years or more.

A 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 Clearance

Foreclosure is the most challenging issue against a security clearance outside a serious misdemeanor or felony conviction. If a client has a foreclosure and is a police officer, in the military, in the CIA, security, or any other position that require a security clearance, in almost all cases clearance will be revoked and position will be terminated.

On its own, a short sale does
challenge most security clearances.


Current 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 future 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 judgment.

In some successful short sales, it is possible to convince the lender to give up the right to pursue a deficiency judgment against the homeowner. does not assume responsibility nor guarantees the accuracy of this content. is not engaged in the practice of law nor do we provide legal advice. All rights reserved. Any duplication without express written consent is prohibited, although we encourage you to link to us or share with your network on your favorite social network.

This information was provided to you so that you would understand not only what the ramifications of a foreclosure but to also show that there are options and hope, but your individual situation is unique and you should seek of the advice of a real estate professional today. Please contact Angie Perez of Weichert, Realtors at the following number today for a free consultation. 973-715-6210

Post By Audeliz Angie Perez (160 Posts)

Angie Perez is a NJ Circle of Excellence award winning real estate agent for Re/Max Select in Westfield NJ. She sells anywhere from 12-25 houses per year on a consistent basis since 2005. Ms. Perez is primarily a buyer's agent on 60% of her real estate sales where she represents rental income investors, first time home buyers & trade up home buyers of 1-4 family homes within specific towns encompassing 4 NJ counties: Union, Essex, Middlesex and Somerset County. Many of Ms. Perez's clients appreciate her ability to negotiate favorable real estate deals for them. Many of her clients commented that her research abilities, her honesty, her knowledge of local market trends and her proficiency to manage multiple real estate transactions from start to close are some of the reasons why she was hired as their agent of choice. Please call, text or email Angie Perez to ask if she lists or sell in your town. If she can not help you, Ms. Perez would be more than happy to help or refer you to someone who can.

Website: → NJ Real Estate For Sale




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3 Responses to Foreclosure Vs. Short Sale-Homeowner Consequences

  1. Bill Prasad says:

    Hi there,

    A person who was going through a foreclosure referred me to your article. I have to tell you that your information is so inaccurate that it is not even funny. Did you know that foreclosures and short sales are actually treated the same by lenders? Most FHA lenders make you wait 3 years while conventional for 5-7 years, regardless of either. Your credit score drops are way exaggerated. I foreclosed 2 properties in CA and still have a 720 fico. There is usually a 30 point difference between short sales and foreclosures and the drop on credit scores is 100-130. it is clear that you have never done loans before and I know your slant is to get as many short sales as you can but you should try and be more responsible and not just put false things out there. There was one person who actually thought you were an expert. Good luck to you.

    • Bill, I can appreciate your frustration. I too am looking for the truth. But, what I provide was not intended to prescribe or predict with complete accuracy one’s situation after a short sale or foreclosure. Each person’s situation is different. But, FHA publishes it’s guidelines on-line of which you can find here: I hope that helps your friend.

      P.S. New Jersey follows/enforces judicial foreclosures. In some short sale or foreclosure cases, there could be a deficiency judgement of which there is a statue of limitations that is generally 5 years after the foreclosure if filed. I would be happy to interview you about your experience so that I can educate my readers. If you’re game, let me know.

  2. Expert at short sales says:

    Thanks for posting good real estate info! I work in Durham NC myself and have also carved out a niche helping home owners avoid foreclosure. Our market is a complete mess as well, but short sales seem to be the best solution for most.

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