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Short Sale vs. Foreclosure??

posted Jul 2, 2011, 9:43 PM by Massey Kouhssari   [ updated Jul 2, 2011, 9:44 PM ]

On January 1, 2011, California Senate Bill SB931 went into effect and stops deficiency judgments on short sales and foreclosures in California on all first mortgages. This means a lender cannot pursue a deficiency judgment whether the loan was purchase money or a refinance.

California Senate Bill SB931 added Section 580e to the California Code of Civil Procedure. The first part of the bill is similar to Code of Civil Procedure Section 580d, which says:“No judgment shall be rendered for any deficiency upon a note secured by a deed of trust or mortgage upon real property or estate for years therein” when the mortgagee or trustee sells the property with the "power of sale" verbiage in the mortgage or deed of trust.

The Legislation applies to any note secured by a first deed of trust or first mortgage for a dwelling of not more than four units. It protects Homeowners as well as Investors, as it is not limited to consumer transactions, nor limited to homeowner occupied dwellings.

Are you a current homeowner facing a Short Sale or Foreclosure?
You need to educate yourself on the option of a Short Sale vs. Foreclosure.

Foreclosure
Short Sale

Resident owner not eligible for a FNMA backed for 5 years.

Eligible in 2 years.

Investor owner not eligible for a FNMA backed loan for up to 7 years.

Eligible in 2 years.

On future credit applications one will have to answer YES to the question that asks. “Have you had a property foreclosed upon, or relinquished a “Deed in Lieu.”

There are no such questions regarding relinquishment of a property by short sale.

A homeowner’s FICO Score may be lowered anywhere from 250 to 300 points or more.  One’s credit score will generally be adversely affected for up to 5 years.

Only late payments on mortgages will appear.  After the sale the debt is reported as “paid as agreed”, “paid as negotiated”, or “settled by compromise”, only lowering the score by 50 points or so.

A foreclosure can remain in one’s credit history records for up to 10 years.

A short sale is not reported in one’s credit history.  It’s shown as a charge-off and its effect might last only 12 to 18 months.

Other than a serious misdemeanor or felony conviction, a foreclosure is a primary issue to obtaining (or keeping) a Security Clearance.  If one is a police officer, in the military, in the CIA, FBI or in any position requiring clearance, clearance is revoked and the position may be terminated.

A short sale does not challenge most security clearances in that there has been a bona fide offer and compromise regarding indebtedness. In other words, the loan was paid as agreed.

Employers are actively checking credit on employees in sensitive positions.  In many cases, a foreclosure can be a reason for immediate termination.

A short sale is not reported as a foreclosure on a credit report and is therefore not a challenge to employment.

Many employers are requiring credit check on all new employees and a foreclosure is one of the most detrimental entries one can have.

A short sale is not reported on a credit report and is therefore not a challenge to future employment.

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