How Does Loan Default Impact "Current Life Scenarios?"

Current Employment:

Foreclosure:  Employers have the right and are routinely checking the credit  of employees. A foreclosure in many cases is grounds for immediate reassignment or termination.

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

Future Employment

Foreclosure:  Many employers are requiring credit checks on job applicants. A foreclosure is one of the most detrimental credit items an applicant can have and in most cases will challenge employment.

Security Clearance

Foreclosure: Foreclosure is the most challenging issue againt 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 be terminated.

Short Sale:  A Short Sale on its own does not challenge most security clearances.

Deficiency Judgement

Foreclosure:  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 sale price and longer time to sale in a declining market.

Short Sale:  In a properly managed short sale the home is sold at a price that should be close to market value and in most cases will be better than an REO sale resulting in lower deficiency.

Future Mortgage Loans

Foreclosure:  On any future 1003 application, a prospective borrower will have to answer YES to question C in section VII that asks "Have you had property forclosed upon or given title or deed inlieu thereof in the past 7 years?" this will affect future rates.

Short Sale:  There is no similar declaration or question regarding a short sale.

Credit Score

Foreclosure:  Your score may be lowered anywhere from 250 - 300 points.  Typically will affect score for a minimum of 3 years.

Short Sale:  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 - 18 months.

Credit History

Foreclosure:  Foreclosure will remain as a public record on a person's credit history for 10 years or more.

Short Sale:  A Short Sale is not reported on a credit history report.  The loan is typically reported as "Paid In Full".