Foreclosure or Short Sale: Do You Know the Difference?

It seems that we can’t even turn around these days without hearing about another short sale or foreclosure. If you, or someone close to you, might be heading in that direction, make sure that you have all of the facts.  There are a lot of misconceptions because faulty information abounds.  Always be sure to check with an attorney who has experience handling short sales and foreclosures before you make any decisions. Here, we will give you a basic overview of the differences between the two so that you at least know what your options are.

Let’s face it – going through either a short sale or a foreclosure is going to have an impact on your credit.  The question is: which one will be most appropriate for you? Here, we’re going to take a look at several different ways you will be impacted if you choose foreclosure, and compare that list with short sales.

Your Credit Score

  • Foreclosure – Your score may ultimately end up 300 points lower than it is currently.
  • Short Sale – Only if you have any late payments during the short sale period will your credit score be affected. When the short sale is finished, the mortgage will be labeled as “settled”. Luckily, you may only end up losing 50 points or so on your credit score, and you can probably bring that back up within a year.

Your Credit History

  • Foreclosure – A foreclosure will remain listed on your credit history for seven years.
  • Short Sale –  Although a short sale may be listed on your credit report, they are usually marked as ‘settled’ or ‘paid as agreed’.

Your Future Purchases

  • Foreclosure – On future Uniform Residential Loan Applications (1003), you will be required to reveal that you have experienced a foreclosure or given title or deed in lieu thereof for the seven years immediately following your foreclosure. This will affect your interest rates and willingness of lenders to work with you.
  • Short sale – Short sales are not addressed on the 1003 Loan Application.

Your Responsibility for Deficiency

  • Foreclosure – In most states, including New Jersey, the bank is allowed to pursue you for a deficiency judgment, which is the bank’s way of getting the money it lost due to the low foreclosure sale price. This can mean that, just when you thought you could move forward, your nightmare is still continuing. (Check your state’s deficiency policies.)
  • Short sale – Typically, if the short sale is successfully negotiated, banks will not pursue the deficiency, meaning they will take the loss and will not attempt to recover it from you.

Your Current Employment

  • Foreclosure – Since employers are free to check the credit of any employee with a sensitive job title, a foreclosure could have an impact on your current employment. This is a case-by-case scenario however, and is dependent upon your company’s policy.
  • Short sale – Being listed on your credit history as ‘settled’ or ‘paid as agreed’ means short sales will not create any problems for you regarding your current employment.

Your Future Employment

  • Foreclosure – Currently, employers have the right to perform credit checks on all job applicants. Since foreclosures are listed on your credit history for seven years, it could definitely pose a problem in getting hired.
  • Short Sale – Being listed on your credit history as ‘settled’ or ‘paid as agreed’ means short sales will not create any problems for you regarding future employment.

Your Security Clearance

  • Foreclosure – If you are in a position that requires you to have security clearance, a foreclosure on your credit report could seriously affect your ability to perform required job duties, which may result in termination.
  • Short Sale – Since short sales are almost always listed on your credit history as ‘settled’ or ‘paid as agreed’, they will not create any problems for you regarding security clearance.

The information we have provided you with is intended for your use as a general guideline in order to educate yourself about your potential choices. Remember that there are variables in every single case, and Veitengruber Law can help you make the most appropriate decision for you.

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Do You Know Your Credit Score?

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Most people have been advised to check their credit report regularly, having been reminded by friends, family members or possibly even financial advisors. However, it seems that many Americans just don’t understand how vitally important it is to have a good credit score and the fact that their entire financial world revolves around that report. In fact, in order to move forward in many areas of life, a high credit score is, quite simply, a must-have.

Staying on top of your credit report each year will alert you to any changes that are occurring in your credit score, including the most insidious form of credit fraud known as identity theft. This happens when a thief opens one or more accounts using your name, leaving you with all of the responsibilities when the collectors want to settle up. This type of identity theft can be overlooked if you are not reviewing your annual credit report.

It is important for everyone to be aware of their credit standing because it can have an extraordinary effect on many areas of financial stability including: buying a home, getting a car loan, renting an apartment, and making many other large purchases. Insurance agents and prospective employers may also use your credit score to make decisions about what type of person you are. A higher credit rating makes you more attractive to lenders. You can keep your borrowing options open by monitoring your credit report on a regular basis.

Veitengruber Law knows how to fix bad credit whether your low credit score was caused by poor decisions in the past or credit report errors. We know that poor financial decisions and unreported errors are lowering your credit score, which means that you are paying unfair interest rates or even being denied credit. Let us put our knowledge to work for you! If you need to buy a new home, settle old accounts that are unpaid or overdue, are recovering from a divorce, bankruptcy or foreclosure, call Veitengruber Law today for a free consultation about fixing your credit rating the right way.