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Short Sales vs. Foreclosures

Some homeowners who are behind on their mortgage simply pack their things and leave. As a result, lenders have no choice but to foreclose upon abandoned properties. Foreclosure, however it may occur, can be damaging to your credit and reputation. Instead, working with your bank or lender to approve a short sale will have much less impact on your future. Read about the pros of short sales and the cons of foreclosure below.

Your Credit Score:

Next to bankruptcy, foreclosure has the biggest negative impact on your credit score.

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With a short sale, only late payments will show and those payments will be reported as paid as soon as your home sells.

Your Credit History:

Foreclosure will stay on your credit history as a matter of public record for up to 10 years.

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With a short sale, other than your history of late mortgage payments, your loan will appear as "settled" or "paid in full".

Future Mortgage Loan:

There is a question on every standard loan form asking "have you had property foreclosed upon in the last seven years?" Your affirmative answer will affect your ability to get a mortgage as well as loan rates.

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There are generally no questions about short sales on mortgage questionnaires.

Your Employment:

Many employers regularly check their employees' credit and most potential employers run a credit check before hiring a new employee. In most cases, foreclosure is grounds for termination or reassignment. As foreclosure is one of the most detrimental items on credit report, a majority of employers will not even consider hiring someone with a history of foreclosure, no matter how well qualified.

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Again, your mortgage loan will appear as settled or paid in full on your credit report after a short sale.

Security Clearance:

Other than a felony conviction, foreclosure poses the greatest challenge to a security clearance. If you are a police officer, serve in the military, work in private security, work for a government agency or contractor or any other position that requires a security clearance, in nearly all cases clearance will be revoked and you may be terminated.

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A short sale on its own usually does not challenge security clearances.

Learn about government programs to help distressed homeowners here.