Short Sale vs. Foreclosure

What Is a Short Sale?

Answer: When the lending institution agrees to let a seller sell their home for a lesser amount than the current payoff amount.

Today’s market statistics show that approaching 80% of every property sold across the country is a distressed property (Short Sale, Foreclosure or Auction) and out of that 8-%, 61% is a Short Sale. Selling via Short Sale is a growing trend for many reasons today, but mainly because of the tremendous benefits the seller receives in a Short Sale rather than letting the property go into foreclosure. The outstanding reasons a Short Sale is preferred is because:

  1. A successful short sale buyer can often time be found credit worthy to buy a home again in 19 months VS up to 7 years on a foreclosure.
  2. The banks would also prefer a Short Sale to foreclosure because the banks usually received significantly more money on a Short Sale than foreclosure.

Credit Score

Foreclosure: Score may be lowered by more than 300 points. This will usually last for over 3 years.

Short Sales: Only late payments on a mortgage will show, although often the mortgage is reported paid, or negotiated. This will lower score as little as 50 points, if all other payments are being made. A short sale’s effects can be as brief as 12 to 18 months.

Credit History

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

Short Sale: A Short Sale is not reported on a credit history. There is no specific reporting item for a “Short Sale”. This loan is usually reported a “paid in full” or “settled for less”.

FUTURE FANNIE MAE LOAN – Primary Residence

Foreclosure: Is ineligible for a Fannie Mae backed mortgage for a period of 5 years.

Short Sale: A homeowner who successfully closes a short sale will be eligible for a Fannie Mae backed mortgage after only 2 years.


Foreclosure: An Investor who allows a property to go into foreclosure is ineligible for a Fannie Mae backed investment mortgage for up to 7 years.

Short Sale: An investor who successfully closes a short sale will be eligible for a Fannie Mae back investment mortgage after only 2 years.