Sorry Elaine, you would think that a foreclosure is much worse but when it comes to the credit bureaus it is all the same to them. I'm surprised that with all your experience in short sales you wouldn't know this already.

Here is what I found on My Fico by Fair Isaac which developed the algorithm all major credit bureaus use to determine your credit score:
-------------------------------------------------

How does a foreclosure or short-sale affect my score?

Question
How does a foreclosure or short-sale affect my score?

Answer
Credit bureau reports are limited in how they represent foreclosures today, so it's generally not possible to tell from the credit report if a reported foreclosure is a short sale, deed in lieu of foreclosure, settled account, regular foreclosure, or some other variation.

The FICO score treats all of these descriptions that appear on credit reports as serious delinquencies, so they have an impact on the score similar to the impact from a charge off, tax lien or account included in bankruptcy
---------------------------------------------------------
Bottom line like I said before, for now they are reporting it all the same. Here's the link - it doesn't fit in the 'web reference' field.



http://myfico.custhelp.com/cgi-bin/myfico.cfg/php/enduser/st…

Jeanne,
I think everyone wants the magic answer to How Short Sales from this current market will be reported by the bureaus ultimately and I'm not sure anyone can give you that answer at this time. Just like they did with the taxes on the deficiency judgements, who knows if the government will step in and change the way things work and make another except to the rule. I do know that sometimes in dealing with them the consumer is in the right (erroneous information report ) yet they still have to swim upstream in order to correct it. Regardless of whatever the final decision is, I'm sure there will still be lenders/creditors that are going to report it however they please. I don't think getting a lawyer would hurt but it will cost you.

Hi All - Just an update for anyone who wonders - the house sold (short sale) Feb. 2009. The deficiency is "forgiven" by the lender, but a 1099C will be forthcoming come tax-time. So far, regarding credit - the 1st 2 months wasn't great. The note comes up as "account settled." My most recent credit score was around 690. Not too bad, considering. It is gradually climbing. The reason I'm updating you is so that anyone of you with clients in this situation, or, yourselves, you can say - the short sale isn't the end of the world. Of course, there's lots of variables, including what one has leveraged leading up to the sale. Sometimes people have pulled out all the stops and borrowed off everything to only end up with a huge deficiency in the end and an IRS bill. Speaking of which, this property, which was the subject of this thread, was a primary residence so we'll see what the IRS has to say in 2010.....We'll keep in touch.

Thanks for your response! There's a lot of interesting articles on that website.

Your credit will take a hit, but you wont have a taxable event on a primary residence. If you took out a second mortgage after the fact you may have a problem.

Hey Chris, I have in a letter (I don't know how to put a pdf. attachment on this format) from an attorney (not my foreclosure friend, but another attorney on Cape Cod) all about short sales, wherein he also staes that credit bureaus have not been amking any distinction between foreclosures, pre-foreclosures/short sales, or delinquencies. They are all getting compartmentalized into one catagory....bad credit. For the next ten years. I have found a lender to give me a loan off another property I own to make up the deficiency---now for an offer!!!

But I have gotten so many interesting and informative comments here in this thread. I hope it has been a learning experience for us all. This whole short sale & foreclosure phenomenon will continue to be with us for some time. I would be interested to see what else we find out along the way. I will be happy to report anything new I find. Thank you for reporting in your FICO find, Chris.

While there are many "get rich with short sale" ideas out there, and perhaps some folks are nailing it, there is no great panacea for the besieged seller, I'm afraid.

Go into the article database at GetPrequalified.com. There are a bunch of articles on this.

Speaking of lawyers, the attorney friend I was talking about has his regular real estate site, but he also has his foreclosure defense site -- pertinent to those of us in Massachusetts, but probably some of this applies to anyone. Here it is in case anyone's interested.

TMan -- Thanks for clarifying. At the moment, nothing has even happened yet, but it is good to get all this info now, ahead of time, to be as prepared as possible.

Jeanne,


**..to be sure the appropriate attorney goes over it carefully?..**

See, the biggest problem is timing and how and when the lenders handle their paperwork...

Keep in mind, banks have always been very slow with foreclosures, short sales, car and boat repo's and lease returns ... now, the figures have doubled and the lenders have the same staff, most times even less ... a good attorney can move it along, watch the sequence of events, etc ..


As an example .. lease returns can easily sit 30/60 days, in some cases I've seen them sit 90 days before they hit the auctions .. the longer they sit, the less the value - the less the value, the more the consumer owes ... in the meantime it's bouncing around their credit history and the credit rating is disintegrating.


Sincerely, best of luck.!

: ^)

Thanks Jennifer. I imagine you are hearing a lot about short sales in your area, or at least, in CA. I was just talking to a friend who is a realtor and an attorney, and he says there are so many differing opinions (and actual truths) about the short sale right now. Different people have different experiences. He is going to look at any approval letter I may happen to get, though, which is great. He has worked with our attorney general (Martha Coakley's) office here in MA. on a couple of foreclosure cases. I'm glad you all reminded me of the attorney aspect---I'd forgotten about this guy---he's great, and understands all this. So anyway, no wonder the confusion on this topic. It is really confusing. Whatever I end up doing, I ought to keep you all up-to-date, so you can know what happened, at least, in THIS case :-)

Great answer, Tman! But tell me this---You'd rather spend $900 on an attorney to tell you---what? I don't have a choice about the short sale, I have to do it. But is there something else I need to know? I want to be sure I'm covering everything. You mean, once I have a short sale letter from the lender, to be sure the appropriate attorney goes over it carefully? Just need clarification here. Thanks!!!

Jeanne,

Well ... after reading some of the posts here it's seems you have the recipe .. but you just don't know how that pie will come out.

It's not the "short sale" in itself .. it's how the short sale effects your standing credit - before, during and after it happens.

Every creditor you have, JC Penney, Visa, MC, AMEX, the loan on your car, etc ... any of the creditors that are sitting on your credit report as we speak, get effected.

They run something that's called a "universal revue" every 30/60/90 days depending on the creditor ... it's not new, and it's inside all of those little bitty contracts they send everyone .. except nobody ever reads them.

As the mortgage payment becomes late, it flies a flag that the other creditors can see ... usually the first thing that happens is those nice 8.99% credit cards, turn into 18.99% .. it's perfectly legal, and it's also on all of those little bitty contracts that nobody reads ...

As the mortgage payment becomes later, longer ... the other creditors pick it up and pretty soon those nice little 18.99% credit cards become 28.99% (depending on your state usury laws) ...

Usually by this time, they just flat cancel the cards, even though your setting arrangements for this 5 month past due "short sale" ...

Remember, creditors look for the here and now, not the maybe next month routine ... by this time, you can bet your FICO has dropped from a 780 to a 580 (or less) and it will take you the next 25 months to get you back to 650

There's a huge amount of very bad information going around the internet right now .. "you only loose 50 points .. you can buy a new house in 12 months .. the bank loves to do short sales." ... Not.!

If you do decide to do anything .. you need to get with an experienced attorney that knows and understands the credit industry, not a paper pusher, not a guy that does BK's (anyone can do that) .. but an experienced attorney that knows credit and the current real estate market and how it effects you on a daily basis ....

I'd rather spend $900 on a attorney to tell me, than to flush $900,000 away because I couldn't be told ...



: ^)

Hi Home-buyer, I am not even looking to get out "free & clear," because I realize I got myself into this mess, but I would like to at least be able to preserve some shred of my credit, which was always around 750 while not lose absolutely everything, and also not have to pay back a large sum of money for the rest of my days. Hopefully we can work out something that everyone can live with! I am single with two kids in college (one recently left the university to transfer back home to our community college to save us money) so I hope not to pay a big prommissory note every month. I'd agree to an affordable one, tho! Otherwise, I'll be right back in the same shape as before----unable to afford payments :-)

It would seem that 'short-sale' is a magical cure to make everyone happy when a bad situation occurs, when in reality I think no one (except maybe the buyer) really comes out smelling like a rose. There are questions as to the lender's treatment on its audited financials and tax returns as to how the 'short' is treated and when that starts coming to consistency of treatment then you will know how results will be reported to you. While banks sometimes seem to make the rules when it comes to the State Agencies, Auditing Firms and the Department of Treasury (IRS) things may change. I'm betting you'll not end up free and clear and with spotless credit. Even getting it in writing isn't a guarantee if the lenders are not allowed to treat the short sale that way.

Good grief, Chris. This is one of those get-rich-quick on foreclosure/short sale programs (foreclosure millionaires). Do these things really work? Sounds like short sales & pre-foreclosures are slow and a lot of work! Can you really turn over a fast buck with them? (And if so, I want to do it. Maybe off-set my pending horrific debt!!! LOL.) Anyway, the point being, I don't know how much of this to believe here...

Ute, Thanks for this great article (web reference below) This is full of excellent (albeit depressing) information. Perhaps I'd better get a car now, since I won't be buying one for many years!

Unfortunately your situation is much too common now a days and since we've never really seen anything like this in the past - at these current levels at least - it will be difficult for ANYONE to predict the future for you.

I’m doing a lot of short sales currently and here is what I’m seeing:

1. Deficiency judgment: Depends on the bank and the situation. Generally speaking what I'm seeing is that if you had the 1st and 2nd (HELOC etc) with the same institution once they agree to the short sale they are not come after the borrower for the deficiency unless they had to sign a promissory note at closing. Again this is a GENERALIZATION and does not give you a clear insight into what they may do in the future since they are still entitled to collect on any judgments. Someone from Wells Fargo told me that once they close the short sale they write-off the remaining balance & don’t generally go after the borrowers. Again whose to say they won’t in the future.

2. What I have seen is the second and third lienholders (usually other banks) come after the individual even after they agreed to the short sale.

3. As far as the credit, I've been told by several lenders now that they will be treating it as a foreclosure on your credit report since that is how the bureaus will be ranking it (using the FICO model).


Botton line it’s not going to be pretty no matter what you do unless you can save your home by getting a second job etc..Again it's hard to say what banks will do since many don't even have a handle on the situation right now. Even if it seems like they are not pursuing borrowers for the judgement now who is to say they won't in the future.

Hello Jeanne. Thank you for coming back with more information. Please do not believe the lender when they say that they will not come after you for a deficiency. Any verbal promises are only worth the paper they are written on. Unfortunately, the lenders cannot be trusted. Believe me, if they are willing to forgive the deficiency, they are willing to put it in writing. You would not be the first person who has been lied to by the lenders. I am not trying to scare you, but short sales are tricky and it's important that you get the legal advice before you sign on the dotted line. Every state has different laws and you want to make sure that the short sale approval letter that has been drafted by the lender that most likely is from another state, meets the legal requirements in your state. I have included a link to a short sale article that I thought was enlightening.

Thank you. This is very helpful. Mine is a complicated case and there is a lot to the situation. Three attorneys told me three different things. I guess in the end it will be settled in some way or other, but I do like your idea of having an attorney look at the short sale approval letter. Originally. when I spoke with the lender about this, I asked if they would go after me for a deficiency judgment, and they said no. I asked if they would put this in writing and they said no. I haven't done anything but lower the price to below what I owe the lender for now, as the lender said they would agree to a short sale since the BPO came in at $100k below what I owe them.

Hello Home Seller. It's really impossible to predict exactly how much a short sale will affect your credit. While short sales have been around for quite some time, they were not nearly as common as they are these days. We really don't have enough data yet to draw conclusions and each person is a little bit different as someone's credit score depends on many other factors. We all have the same question and no definite answers yet.

Not all short sales are alike and how a short sale will affect your credit will depend on the terms of the short sales and how it will be reported to the credit agencies . Many mistakenly think that the banks always forgive the deficiency amounts just because they agree that they'll take less than what's owed when escrow closes. While it is true that this can happen, it is also very possible that the lender will want the seller to sign a promissory note. The deficiency debt is usually unsecured and can be paid off over the course of 15-20 years at a very low interest rate or even zero interest rate. Unless the lender's short sale approval letter clearly states that the lender releases all claims it may have against the seller/borrower, the short sale approval does not result in an automatic waiver to collect the deficiency and the banks can come back and try to collect later. If they forgive the loan, the seller should receive a 1099 and will then have to deal with the 1099 at tax time. If the seller does not qualify for an exemption under the rules of the new Mortgage Forgiveness Debt Relief Act, the seller may have to pay income taxes on the forgiven amount and if you can't make the payments to the IRS, your credit may be adversely affected as a result. If you think about doing a short sale, you should consult with a real estate agent experienced in short sales, an attorney and tax consultant. I would strongly suggest that any lender short sale approval letter be reviewed by an attorney prior to the close of escrow to make sure its drafted properly. Please remember that the approval is drafted by attorneys for the lenders and real estate agents can't give legal advice and interpret the approval letter. If the lender agrees to forgive all or a portion of the deficiency amount, you also want to know what possible tax consequences the debt relief will have. Unfortunately, many short sale sellers opt not to get the professional help that they should seek and end up with an unpleasant surprise.

Your bank would still be "shorted" the full amount of the loan and I am certain that they would report that loss to the credit agencies!