Home Selling in 45044>Question Details

Peantbuttern…, Both Buyer and Seller in 45044

Does selling your House in a short sale affect your credit?

Asked by PeantbutternJelly, 45044 Fri May 2, 2008

I have read conflicting information on this.

I have perfect credit. Im in a divorce...... The home values have dropped in the neighborhood. I think we could sell the house for what we owe, but after you take into consideration the closing costs and realtor costs we could owe $7-$9K. If I were to sell the house as a shortsale does it affect my credit or not? Are there other options besides maybe renting it?

Help the community by answering this question:

Answers

10
BEST ANSWER
How a short sale impacts your credit will depend on the bank. Some banks will report it as a mortgage paid, others will record as a short payoff, and others will record as a short sale. A short sale will have a much smaller impact on your credit than a foreclosure will! Can you come to the closing table with the 7-9K for closing costs? If so, a short sale might not be required. It would be better to maintain your perfect credit and lose that money. There might be other options, but with your situation, it's probably best to sell to keep things simple.
0 votes Thank Flag Link Fri May 2, 2008
PeantbutternJel,

As you can see, there is a lot of confused folks giving misguided information out there - even after seminars...

Why not.? .. people are trying to make money off someones misfortune.

You have everything from infomercials that declare .. ""short steps to short sales, speedy and safe by spring" ... Or, misinformed statements like .. "Selling a home as a short sale will have a negative effect on your credit, but not as badly as a foreclosure or bankruptcy..."

Thats just not true .. and far from it.

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 affected.

Every creditor runs something that's called a "universal revue" every 30/60 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% on the first 30/60 days .. 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) ...

By this time .. they just flat cancel the cards because your creditors are seeing the mortgage and others go late, or fall into a R9 status "closed" (it becomes a domino affect) even though you're trying to do the right thing by 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 if you're lucky -- it's just not the "short sale" ... it's how the short sale effects everything else.

There's a huge amount of very bad information going around the internet right now .. "you only lose 150 points .. you can buy a new house in 12 months .. the bank loves to do short sales." ... Not.! .. lender "A" is only concerned about lender "A" .. of course you have lender "B", "C", etc involved also ....

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 ...

As you can see, the point system is just not true as explained ...

Sincerely, good luck ...


I've attached the 4/13/2008 Fannie Mae statement in the below post.


: ^)
3 votes Thank Flag Link Fri May 2, 2008
Keith,

Perhaps there is still time to get your money back from the seminar ..

(04-13) 04:00 PDT Washington -- The country's two largest sources of mortgage money have a blunt warning for anyone thinking about joining the growing "walkaway" trend, where homeowners stop making payments and months later send the house keys back to their lender: You will feel the pain.

On March 31, Fannie Mae sent out new guidelines to lenders intended for walkaways and other foreclosure situations. Fannie will now prohibit foreclosed borrowers from getting another mortgage through the giant investor for five years, unless there are "documented extenuating circumstances." In those cases, the mortgage prohibition is for three years.

Even after five years, borrowers with foreclosures in their files will be required to make at least a 10 percent down payment, and will need minimum FICO credit scores of 680.

Freddie Mac, Fannie's rival, counts foreclosures as major credit blots for seven years, and a senior official said the company is now aggressively pursuing some walkaway borrowers "to preserve our deficiency rights" where permitted under state law.

The walkaway trend is particularly noteworthy in former housing boom markets - including California, Florida and Nevada - where many homeowners find themselves upside down on their loans, owing tens of thousands more than the current market value of their houses. If they invested little or nothing in down payments, some owners reason, continuing to make payments - even if they can afford to - may be throwing good money after bad.

A number of Web sites have popped up claiming to cut the hassles of bailing out of a mortgage. One company promises that clients "will be able to live in (the) home for up to eight months with no mortgage payments," after paying $895 for a customized plan. The same site says it will provide clients with "legal credit repair" to "improve your FICO scores."

Another Web site claims that "your credit can be repaired and (you will) be able to purchase a house in as few as two years" - after paying a $495 fee. Still another company says walkaways can expect "up to one year living payment free" as the lender goes about filing for foreclosure. That company charges $995 for its how-to-do-it kit.

Fair Isaac Corp. of Minneapolis, developer of the FICO scores used in most mortgage transactions, is unhappy at any suggestion that a foreclosure could be minimized or wiped away in a short period of time. Its scoring model counts foreclosure as a long-standing and severe event, nearly comparable with bankruptcy, with negative consequences for all forms of credit that walkaways might seek to obtain. That includes credit card applications, auto loans, student loans - and even insurance and employment.

FICO spokesman Craig Watts said that the impact of a foreclosure on an individual's score depends heavily on the payment history, length and number of credit trade lines in a consumer's file, but "it is always significant."

Robin Stout Migala, consumer outreach manager for Freddie Mac, said in an interview that "there are so many bad reasons for walking away" from a home loan. Not only are borrowers' credit standings wrecked - forcing them into excessively high interest rates on any credit they can manage to obtain. But they also face other potential problems, including federal income tax liabilities.

Federal legislation enacted last year allows homeowners who negotiate loan modifications with lenders and have portions of their principal debt eliminated to escape income tax liability for the amount forgiven. Walkaway borrowers, by contrast, have nothing forgiven, and the IRS may demand income taxes on the balance they never paid, according to Migala.

Many borrowers facing foreclosure today have endured serious financial crises, said Migala - loss of employment, loss of an income-earning spouse, medical issues, predatory loan terms - that led to their inability to make their mortgage payments.

When they apply for a loan from either Freddie Mac or Fannie Mae, she said, the standard application form asks whether they have ever experienced a foreclosure or handed over their deed in lieu of foreclosure.

If applicants check "yes," the loan is immediately shifted to manual underwriting. Every piece of information is scrutinized by underwriters, who probe for the facts surrounding the loss of the house.

For borrowers who faced genuine financial hardships leading to foreclosure, underwriters are likely to be more sympathetic a few years down the road. But if you walk away, here's the deal: Don't expect to get a new home loan - certainly not one with favorable terms - for five to seven years.

*** - That's no matter what some promoter promised you online." - ***
1 vote Thank Flag Link Fri May 2, 2008
Well I guess my question to you would be, are you planning on staying at the house? In most divorce settlements the person staying at the resident after a divorce will have one year to either sell the house or refinance it. That is if either one of you want to stay on at the residence. I would like to do the comps on the house to see what the current value is. You may be better to sell it out right with a small gain or loss without affecting your good credit. If the loss is too much to afford then you may consider a Deed in lieu or short sale. I would first try marketing the property. Even in a short sale the banks are going to want to see an effort or property history of the listing. I have done several short sales where the lenders will want at least a 30 to 60 day listing history before considering a short sale. Just remember that the short sale will effect your credit.
0 votes Thank Flag Link Thu Jul 30, 2009
The main thing that no has said is that if you have the 7-9k in assets the lender may not let you do a short payoff on the loan. They would want you to bring the money to close yourself. I also see that you have registered as a buyer and seller. If you go the short sale route forget about buying for a few years. After you cause one lender to loose thousands of dollars there is about a 2-3 year period to qualify for a new home loan.
Web Reference: http://www.Find1Home.com
0 votes Thank Flag Link Thu Jul 30, 2009
•Foreclosure or Deed-in-Lieu of Foreclosure
Both of these solutions affect credit the same. Sellers will take a hit of 200 to 300 points, depending on overall condition of credit. This means if a seller's FICO score before foreclosure was 680, it could dip as low as 380.

•Short Sale
The effect of a short sale (providing the sellers are more than 59 days late) on a seller's credit report is identical to that of a foreclosure. The ding on credit will show up as a pre-foreclosure in redemption status, which will result in a loss of 200 to 300 points. This means a short sale with a previous FICO of 720 will see it fall from 520 to 420.

I have my doubts about that, though. From what I've seen, there is less damage to a credit report after a short sale involving late pays than a foreclosure. Moreover, another advantage for those with delinquencies on their credit is the ability to buy another home within 2 years over the 5- to 7-year period required for foreclosures. And there are other short sale advantages over a foreclosure. But seek legal and tax advice before making that decision





Please contact me with any furthe questions that you may have. Gary
garygabbard@msn.com
0 votes Thank Flag Link Wed Jul 29, 2009
I think the best benefit to a Short Sale vs. Foreclosure, is the fact SS doesn't stay on your permanent public record.
0 votes Thank Flag Link Wed Dec 10, 2008
Tman is correct. A short sale severely affects your credit in multiple ways. Do you really want to ruin your credit over $7,000? Talk to an experienced lawyer, as Tman suggests. Also, just to verify what we're saying, talk to a competent mortgage broker, someone who really understands the credit process.
0 votes Thank Flag Link Fri May 2, 2008
Don Tepper, Real Estate Pro in Burke, VA
MVP'08
Contact
I attended a short sale seminar on Wednesday and the instructor had these estimates:
1. Mortgage payments late, late charges, 75-100 points off your credit score if short sale results in "settled" or "closed" on your report.
2. Foreclosure 180-250 points, probably five to eight years before you could get a loan to buy a home.

When the market shifts, renting is probably the best alternative (there may be some long term benefits). Check with your CPA.
0 votes Thank Flag Link Fri May 2, 2008
Keith Sorem, Real Estate Pro in Glendale, CA
MVP'08
Contact
A short sale will affect your credit, but not nearly as much as a foreclosure will. With a short sale, a person will be most likely able to buy a house in the near future, but if one has to go through a foreclosure, it would take a least 2 -3 years to be able to buy again. When a person needs to do a short sale, he needs to work closely with their mortgage company and explain the hardship caused by the divorce. Also talk to a Realtor to find the market value of the house. The market in our area is beginning to pick up especially this time of year and also now that AK is back to work.
0 votes Thank Flag Link Fri May 2, 2008
Search Advice
Ask our community a question
Email me when…

Learn more

Copyright © 2015 Trulia, Inc. All rights reserved.   |  
Have a question? Visit our Help Center to find the answer