Foreclosure Vs. Short Sale – Las Vegas Homeowner Consequences

Please note – The Following information is provided as a simple reference only as of 07/23/2010. New Programs may change future consequences. For specific legal advice or tax consequences, please consult a licensed Nevada Attorney that focuses on Nevada Real Estate or a Tax Specialist. Lenders and Homeowners have different rights in different states when it comes to deficiency judgements. All information below concerning deficiency rights of judgment applies to Nevada Real Estate for homeowners who purchased and signed loan documents prior to 09/01/2009.

NO TWO home owners have the same job, finances, credit, bills and home. While I can certainly help Las Vegas Homeowners with the actual Las Vegas Short Sale Process, the following scenarios are certainly no guarantee that they will apply and are provided solely for a basic reference.

Las Vegas Foreclosure Vs. Las Vegas Short Sale

Issue	Foreclosure	Successful Short Sale
Future Fannie Mae Loan – Primary Residence	A Las Vegas Homeowner who loses a home to Foreclosure is ineligible for a Fannie Mae-backed Mortgage (the majority of home loans available) for a period of 5 years. Even after 5 years, there are significant requirements that must be met for a loan including higher down payment requirements and higher FICO scores.	A Homeowners  who successfully closes a short sale will be eligible for a Fannie Mae backed Mortgage after only 2 years.
Future Fannie Mae Loan – Non-Primary. (Vacation Homes and Investors)	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.	An investor who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed investment mortgage after only 2 years.
Future Loan with any Mortgage Company	On any future application, a prospective borrower will have to answer "Yes" to Question C in Section VIII of the standard 1003 form to the question: "Have you had a property foreclosed upon or given title or deed in lieu thereof in the last 7 years"?	There is no similar question or declaration needed regarding a short sale.
Credit Score	Score may be lowered anywhere from 250 to more then 300 points. Typically will affect a credit score for over 3 years.	Only late payments on mortgage will show, and after the short sale, mortgage is normally reported as "paid as agreed", "Paid as Negotiated" or settled. This can lower the score as little as 50 points if all other payments are being made. A short sale’s effect on ones credit score can be as brief as 12 months. * In FACT – A Credit Score may remain the same or in a short time… improve due to removing reported debt.
Credit History	Foreclosure will remain as a public record permanently, and on a person’s credit history for 10 years or more.	A short sale is not reported on a credit history. There is no specific reporting item for "short sale". The loan is typically reported as "Paid in Full", "Settled". *Las Vegas Real Estate Agents have NO CONTOL of how lenders report to the Credit Agencies.
Current Employment	Employers generally have the right and are actively checking in the credit of all employees who are in sensitive positions. A foreclosure could have an impact on future promotions.	A short sale is not reported on a credit report and is therefore not a challenge to employment.
Future Employment	Many employers are requiring credit checks on all job applicants – ESPECIALLY for positions where money is handled. The Major Casinos in Las Vegas check credit and will REJECT an applicant with poor credit.	A short sale is not reported on a credit report and is therefore probably not a challenge to future employment.
Deficiency Judgement Rights *State of Nevada	Lenders with first loans have Six Months after they take back title to pursue a Las Vegas homeowner for the loss. Second Loan Holders have up to Six Years to pursue the deficiency amount.	Lenders have up to Six Years to pursue a deficiency Judgement after a short sale for all homeowners in Nevada that purchased and signed loan documents prior to 09/01/2009. HOWEVER – It is possible to negotiate with the lender to give up the right to pursue any future deficiency judgements against the homowner. Typically requires an additional payoff or for the seller/homeowner to bring cash to closing. IN ALL CASES – Make Sure it is in Writing and NEVER rely on a verbal promise.  I do attempt to negotiate all of my Las Vegas short sales for lenders to waive their future deficiency judgement rights but it is NEVER guaranteed.
Deficiency Judgement – (amount) *State of Nevada	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 sales price and longer time to sell in a declining market. Cost of this process are higher and this may result in a higher possible deficency judgement.	In a properly managed short sale performed by a Professional with a company that has advanced marketing tools, the home is sold at a price that should be close to market value. In almost all cases the net amount back to the investors that own a loan will be better then if the property becomes an REO sale resulting in a lower deficiency.

Peace of Mind. If you live and work in Las Vegas, you should care about the community you live in. Bank Owned Las Vegas Homes have done more damage to housing values in Las Vegas then short sales due to lower sales, theft and vandalism of empty properties as they go through the REO process. There are literally thousands of Bank Owned Homes in Las Vegas that are not on the market and sitting vacant, all ripe for break in, theft of appliances, vandalism and deteriation. There have been hundreds of cases of squatters and rental fraud reported when it comes to Bank owned homes in Las Vegas which are a drain of wasted resources for law enforcement agencies… and on the specific community. 

Financially, due to the unfortunate set of Laws that the State of Nevada created when it came up with deficiency judgement rights for lenders concerning short sales, it may be more beneficial for a Las Vegas Homeowner to strategically default and just walk away. Morally though… doing a Las Vegas short sale is far superior then just walking away and letting your Las Vegas home become another sad foreclosure statistic.

Future Ability to Rent – As a Las Vegas Real Estate that also lists Las Vegas Investment Properties for Lease, prospective tenants who have gone through a short sale and have had their credit damaged are still considered. I have advised Las Vegas Investors NOT TO accept prospective tenants who have just walked away from their Las Vegas homes and never attempted to do a short sale. I do have access to research the history of homes in Clark County, Nevada and attempts to sell the property with Professionals.

As a Las Vegas Short Sales Agent with over two years of consistent experience and staying on top of what is taking place with Las Vegas short sales, I am FULLY Aware that not all Lenders will accept a short sale payoff and allow a Las Vegas homeowner to move on in life. However… not even attempting to do a loan modification or a Las Vegas short sale and just walking away because it’s easier to do is of absolutely no use to the Las Vegas Community.

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