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Deed-in-lieu-of-foreclosure Vs. Short-sale Vs. Foreclose

• Foreclosure - credit your credit score may be lowered from 250 to over 300 points and it typically can affect your score for over 3 years. With a successful short sale on your home only late payments on a mortgage will show and after sale mortgage will be reported as paid or negotiated. If all other payments are being made this will lower the score as little as 50 points. The effect of a short sale can be as as brief as in 12 to 18 months.
• Your credit history in a foreclosure will remain as a public record for 10 years or more. A short sale is not reported on your credit history as there is no specific reporting item for a "short sale." The loan is typically reported "paid in full, settled."
• Outside of a conviction of a serious misdemeanor or felony a foreclosure is the most challenging issue against a security clearance. If you are in the military, in the CIA, Security, are a police officer or any other position that requires a security clearance and have a foreclosure in almost all cases that clearance will be revoked and the position terminated. A short sale on its own does not challenge most security clearances.
• If you are currently employed employers have the right and are actively checking the credit regularly of all employees who are in sensitive positions. In many cases a foreclosure is grounds for immediate reassignment or termination. Since a short sale is not reported on a credit report it is as a result not a challenge to employment.
• In the case of future employment many employers are requiring credit checks on all job applicants. In most cases a foreclosure will challenge employment and is one of the most detrimental credit items an applicant can have. As stated above because a short sale is not reported on a credit report as a result is not a challenge to employment.
• A bank has the right to pursue a deficiency judgment in 100% of foreclosures (except in those states where there is no deficiency). It is possible in some successful short sales to convince the lender to give up the right to pursuit a deficiency judgment against a homeowner.
• In regards to deficiency judgment amounts a home in foreclosure will have to go through an REO process if it does not sell at auction and can in most instances result in a lower sales price and longer time to sell in a declining market. This will result in a higher possible deficiency judgment.
• When a short sale is properly managed a home is sold at a price that should be close to market value and in almost all instances will be better than an REO sale resulting in a lower deficiency.
• Effective May 21, 2008 the homeowner of a primary residence who loses a home to foreclosure is ineligible for a Fannie Mae backed mortgage for a period of 5 years. With a successfully negotiated and closed short sale a homeowner will be eligible for a Fannie Mae backed mortgage after only 2 years. In a non-primary residence 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. In a successfully negotiated and closed short sale an investor will be eligible for a Fannie Mae backed investment after only 2 years.
• Eligibility for a future loan with any mortgage company for a homeowner who loses a home to foreclosure will affect their future rates and will require the prospective borrower to answer YES to question C in Section VII of the stand 1003 application that asks "Have you had property foreclosed upon or given title or deed in lie thereof in the last 7 years?" There is no similar question or declaration regarding a short sale.
• Deed-in-lieu-of-foreclosure (DILOF) is the best option for homeowners. Request that the lender shows DILOF as "paid-in-full" on the credit report. Homeowners typically walk away without deficiency judgement and avoiding the stigma from going through the foreclosure process.
• Lenders generally will accept DILOF in appreciating market so they can recoup the costs from owning the properties.