how long does a short sale stay on your credit & what options do you have for a 2nd home during the process??

Asked by Glenda, Lake Elsinore, CA Wed Jan 16, 2008

can i purchase a second home and then do a short sale on my first home? i've been told that it's an option to assure that i can stay a homeowner without too much penalty but how much truth is behind that.

Help the community by answering this question:

+ web reference
Web reference:

Answers

4
Tisza Major-…, Agent, Upland, CA
Wed Jan 16, 2008
Hi Glenda,

One of the requirements for a short sale to be considered is that the homeowner be unable to meet their loan commitment in any way. This will need to be demonstrated with bank statements, credit card debt information and a profit and loss statement if you have a business. Another requirement is that you have no other assets and a second home would indeed be an asset thus making the ability to short sell your first home difficult if not impossible.

If you have the funds available to purchase an additional home then, it would not be unreasonable for the lender to assume that you should be able to fulfill your commitment to repay the loan you promised to repay when you asked for it.

So, that being said, I don't see how you would be able to purchase another home and short sell the home you currently own without running the risk of getting into big touble.

Have you spoken with your lender to see if there are any options that they can offer you that might help to make your situation better? Have you spoken with a Realtor to see what the value of the home you currently have is right now? If you have not done either, I would highly recommend that you do one or both.

A short sale can remain on your credit for upwards of three years> But, for most people, especially if they are making an effort to fulfill their other credit commitments, the negative effects can begin to be reversed in as little as a year.

If you would like a CMA of your home, or to discuss other options that might be able to help you, feel free to give me a call.

Take care,

Tisza Major-Posner, Realtor, Keller Williams (909) 837-8922
Web Reference:  http://Route66Living.com
2 votes
Cindy Vedder, Agent, Irvine, CA
Mon May 12, 2008
How is the Seller's Credit Effected By a Shortsale?
By: Tim and Julie Harris - Broker News

Sellers will take as big a hit on their credit by going through foreclosure as giving the lender a deed-in-lieu of foreclosure. Points lost on a FICO score are as follows:

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 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.

The effect on a consumer's credit report—foreclosure vs. short sale—is the difference between being hit by a train or a bus.

Here's why:

Waiting Period Before Buying Another Home

Foreclosure or Deed-in-Lieu of Foreclosure
A seller who wants to buy another home after foreclosure will end up waiting about 36 months before a lender will offer any kind of interest rate that makes sense.

Short sale
A notation on a consumer's credit profile of 'settled for less than owed' (short sale) precludes the consumer from obtaining an institutional loan for 24 months, depending on the lender's program and regardless of FICO score. Fannie Mae guidelines require 24 months seasoning, and there's no way to get around this.

Short Sale/Foreclosure Deficiency Judgments

The bad news is a seller could be subject to a deficiency judgment for the difference between the loan amount and the amount paid. In California, purchase money loans are not subject to deficiency judgments; however, hard money loans, equity loans and refinances are. Some other states have laws regarding personal guarantees, which could also result in a deficiency judgment, if the home owner is held personally liable for loan repayment.

The lender has sole discretion whether to pursue a deficiency judgment in those instances when the judgment is permitted. To determine whether a pending foreclosure or short sale is subject to a deficiency judgment, talk to a real estate lawyer.

Provided by a Residential Lender I use: John Lemos, Wells Fargo. Good Luck. CIndy Vedder
1 vote
ahmed, Home Buyer, 95631
Mon Aug 20, 2012
I had a short sale and my credit score went from 769 to 680. Now 3 years later it is up to 716. Some of my credit cards were closed by the issuers when they ran a periodic credit card checks. Now I usually get accepted with most of my credit card applications.

I also refinanced my current home with no issues just a little after the 24 months waiting period and I got a good rate. That was a little trickier since not all lenders were willing to refinance me.

Just don't believe those who tell you that your credit score will drop 300 points. In my case , I did a short sale on my first mortgage. The second mortgage was settled for less than the amount owed.
0 votes
Just as an FYI, I had a credit score of 829 when we did a short sale of our home, My credit score went to 530. It happens more than you know and just a little more info NEVER, I say it again NEVER did I ever have a late payment in my 30 years of having credit. So it depends on how bank the bank wants to screw you. they report it how they want to hit you hard or hit you a little.
Flag Tue Oct 13, 2015
Pablo Gonzal…, Agent, Cathedral City, CA
Tue May 13, 2008
Here is an excerpt from my home study course "Short Sale Fundamentals" in the final phases of completion now.

The Homeowner is in Bankruptcy

First off you don’t ever want to offer legal advice to the homeowner unless under the rare situations where you’re a qualified attorney. Let’s discuss the two typical types of bankruptcies that you may encounter.

Chapter 7 - know as Liquidation

Chapter 13 - known as Reorganization

With either type you are going to have to contact the Trustee of the Bankruptcy to get the property released out of it.

You will need to get a letter called “Affidavit of Abandonment for Real Estate & Asset”

This letter will allow you to obtain clear title so you can close on the property with your buyer. Bankruptcy puts a hold or “stay” on the foreclosure process or any other debt collections period. This will continue until it is completed or a “release of stay” is issued by the judge for the lender or lender’s trustee to proceed with the foreclosure.

If you try to do anything with the homeowner while they are in bankruptcy it can be considered “fraudulent conveyance” since the asset (the property) you want to buy legally isn’t in the owners control at that time. In fact, their's a Federal Law that states that ANY conveyance while the property is in the bankruptcy will not be valid! The bankruptcy has control over it. You see when a person files for bankruptcy the Bankruptcy Court will assign a Trustee/Attorney to manage the debt situation for the homeowner until it is discharged or dismissed.

The only way you can get the deed legally is stop the bankruptcy or get the Trustee of the Bankruptcy Court to agree to release it. You will need to contact the Bankruptcy Court Trustee or Attorney and tell them you have interest in buying the house. Most of the time if they deem the property has equity, they WILL NOT release it. That’s why it is vital to communicate with them about doing a short sale and the property it’s not worth what is owed on it. Therefore it essentially has negative equity. I have been through this process a lot and can tell you it IS NOT EASY…but doable. You will need to have all your contractor reports, appraisals, supporting documents ready to send to the Bankruptcy Court Trustee at a moments notice.

In my experience, it usually takes a minimum of 20 days before you get an answer. That is of course if they are not backed up with other files in front of yours which is like…never. Before attempting this make sure the property you’re dealing with has a significant upside to it. I’d say at least $30,000 profit or you’re probably wasting your time. It can be profitable, but you must pick and choose your battles. Be sure and keep a pulse on how much time you have before the sheriff sale too.

If the Bankruptcy Court Trustee agrees to release the property from the bankruptcy you can expect the foreclosure process to begin very quickly. Keep a pulse on how much time you have to get it closed. It is best to have the buyer ready to go before getting the property released.

With cases in bankruptcy, I usually get the deed and all the other documents signed, but I DON’T FILE THE DEED until I know the bankruptcy is complete or dismissed.

One other thing: EVEN IF... the BK has been dismissed some title companies still need the "Affidavit" mentioned above filed by the attorney that filed the BK for the homeowner...or use another attorney, in order to get clear title.

I hope this helps.

Life has Ups and Downs so Enjoy the Journey, but Stay Focused on Where You Want to Go,
0 votes
Search Advice
Search
Ask our community a question

Email me when…

Learn more