SHORT SALE

• A homeowner who negotiates and closes a short sale will be eligible for a Fannie Mae loan after only two years. The same is true for an investor. This situation will likely change in 2010.
• While the credit score will reflect late payments, the mortgage will be reported as paid. The credit score may drop as little as fifty points. It really seems to vary by lender.
• A credit history has no reporting item for a short sale. Lenders and services often neglect to report them at all. Increasingly, though, they're reported as "Creditor settled for less than the full amount due."
• The 1003 mortgage application asks nothing about short sales.
• A short sale, by itself, will likely not challenge most security clearances.
• Since they rarely appear on credit reports except as noted, short sales may be less of a challenge to current or future employability.
• A properly managed short sale will result in a lower deficiency, and sometimes none at all.

A short sale means that a home owner sells her home for less than the debt on the house. For example, if a home has a mortgage of $200,000 and the owner sells it for $180,000, the sale is “short” by the $20,000 difference.

Of course, the lender will have to approve of the short sale in advance. In the above example, the lender will have to agree to take $20,000 less than it is owed.

Sometimes, more than one lender is involved, because owners sometimes have second mortgages on their homes. One example of a second mortgage is a HELOC (Home Equity Line of Credit). All lenders with trust deed interests in the property must approve a short sale in advance.

If the trustee has already issued a Notice of Default to begin foreclosure proceedings, the lender usually agrees to stay (delay) the foreclosure if it has agreed to allow a short sale.

When the proceeds of a sale on a home are less than the debt, the difference is called a deficiency. An example is the $20,000 figure in the first paragraph, above. In Oregon, deficiency judgments are not granted if the trust deed foreclosed upon secures a loan a borrower used to purchase a home (known as a purchase money trust deed).

But deficiency judgments ARE granted in come circumstances. One instance occurs when a trust deed is not actually foreclosed, which happens when a deed-in-lieu is given by the debtor. A short sale also creates conditions for deficiency judgments, so owners and real estate brokers (or other third parties) negotiating short sales must make sure the lender will not pursue a deficiency.

Second mortgages such as HELOCs are entitled to deficiency judgments. In short sales, negotiations with these lenders must be handled with particular care. They may pursue the seller for unpaid amounts.

DISCLOSURE

In the current residential real estate market, information about the effects of foreclosures and short sales on individuals is constantly changing. The above information is offered as a guide, with the proviso that facts can change. This site will be updated as new information becomes available.