Short Sale vs Foreclosure: Impact on Credit Scores

This is an updated version of a post that I sent out earlier in the year:

I have gotten the impression from many real estate agents that they are unaware of the effect of a Short Sale on their clients' credit report. The common belief is that a Short Sale isn't as bad as Foreclosure or Deed In Lieu of Foreclosure.

I have argued with people about this and there is a lot of information out there with claims to the contrary. It scares me because I see a lot of lawsuits in the future regarding this.

Short Sales, Deed in Lieu of Foreclosure, or full blown Foreclosure are all weighted the same in determining credit score computations. This information comes directly from MyFICO.com. MyFICO.com is operated by the Fair Issac Corporation, the inventors of credit scoring. I have not stated this without extensive research. This is "straight from the horse's mouth."

Earlier this year, FNMA announced that a record of foreclosure on a credit report will require that three years must pass prior to placing a borrower into a FNMA insured loan. At the beginning of June 2008, that time frame was extended to five years. That is five years from the sale date.

Remember, that the home owner does have redemption periods after default and because of this, the sale date is the actual date of the foreclosure.  An owner wouldn't necessarily know this without researching the actual date.

The Mortgage Bankers Association announced that one in every 200 homes with mortgages is facing foreclosure.  That is a lot of bad news to many families. This information was announced in June of 2008 and the news has become much worse as I write this in October of 2008.

The "Bail Out" bill now being reviewed again by the House of Representatives will give some "bite" to those of us who renegotiate for Loan Modifications. Loan mods are done for a home owner cannot keep up with the current terms of the mortgage. Changes can be negotiated and will keep you in your home.

I am bragging, but 18 months ago, I correctly predicted that short-refis would exist. They do now.....it is called Loan Modification or a "Loan Mod". A new FHA loan to reduce the balance on home loans and make the payments easier was announced yesterday.

I have been able to help quite a few homeowners' mortgages with awesome results! This new bill being passed will bring some order to the process and make it easier to accomplish.

If I had my home on the market because of a bad loan, but felt I needed to sell when I really wanted to stay. If I found out that my agent said a short sale wouldn't hurt me as badly as foreclosure the I would have me gunning for someone to pay.

I would rather it wouldn't be you. You the seller or You the agent who passed on information that will cause serious harm.

Thanks for reading.

Comments

[מחשבון משכנתא]

Great post!

[mortgage leads]

yea loan mods are pretty sweet! to be able to refi without the closing costs is not bad.

-Chad

[martman]

I really like your website Mary. let me say from one blogger to another that your work is really quite good. I am therefore putting a link to this site on my home page at http://home---refinancing.blogspot.com. Keep the content rolling, I know that you will and that my readers will benefit greatly from this site. Cheers.

[martman]

I really like your website Mary. let me say from one blogger to another that your work is really quite good. I am therefore putting a link to this site on my home page at http://home---refinancing.blogspot.com. Keep the content rolling, I know that you will and that my readers will benefit greatly from this site. Cheers.

[LA Land Buyer]

The banks servicing the bad loans need to put some of that money into keeping people in their homes. Whether that's through mods or some other means of interest modification, its important the money filter back to the people.

[dexter]

Thanks for the good read, I will definitely return for an update!

[Real Estate Short Sale]

Many people are under the impression that a short sale has no impact on their credit or has no tax implications but nothing could be further from the truth. Especially homeowners of a 2nd property or investment property. Unless insolvency can be proven to the IRS these homeowners will be on the hook for large amounts of federal tax.

[Real Estate System]

Great blog. Very informative, especially in light of the ever changing mortgage market,
consumers need up-to-the-minute updates on what’s going on.