Do short sales hurt your credit?

Asked by SELL MY HOUSE!, Saint Petersburg, FL Thu Nov 6, 2008

We have had our house on the market since Feb 2008 with no end in sight. We have it listed at our breakeven point and have only received offers that were $20-30K below that number. My realtor is saying that short sales will not adversly affect our credit but I can not get a straight answer from our mortgage company. Does it depend on how your mortgage company reports the sale? Will we ever be able to obtain another loan?

Help the community by answering this question:

+ web reference
Web reference:

Answers

22
Bill Gassett, Agent, Hopkinton, MA
Wed Mar 24, 2010
Your Realtor does not know what they are talking about. While every short sale circumstance is different it would be highly unusual for your credit score not to be effected. Generally speaking you can expect a drop of about 75-200 points on your FICO score.
2 votes
Michael Cepa…, Agent, Tampa, FL
Mon Jun 14, 2010
Update: The FHA now allows you to utilize their financing immediately after a short sale, as long as you were NOT late on any of your prior mortgage payments. Another great reason not to believe people or banks, when they tell you that you must be late, in order to do a short sale.

As for the credit hit, there is still no magic formula for the consumer to figure out how big of a credit score reduction you will incur. I have had clients with as little as a 3 point reduction, to as much as 200. I have even had 1 client whos score actually went up.

This is not to say yours will go up, so please don't think that is what I am telling you, I'm simply letting you know what I have seen with a few of my clients. While none of us have that magic formula, the credit bureaus most definitely do, and it is what they use to determine scores.

One last item, always pull your credit a few months after the sale, in order to be sure they lender reported it correctly, as I have seen where they have mistakenly reported it as a foreclosure, which it most certainly is NOT.
Web Reference:  http://BuyAndSellTampa.com
1 vote
Michael Cepa…, Agent, Tampa, FL
Sat Nov 8, 2008
Pamela, everything in a short sale is a negotiation. Why would your goal be for the banks to report it as PreForeclosure? To get a bank to say it was "Paid as Agreed" or "Paid in Full" is definitely not an easy thing to negotiate, but it is possible. The goal in a short sale is to shoot for the moon and see where your taken. If you don't ask for Paid in Full or something to that effect, they can't say no and then be able to negotiate down from there. If you ask for Pre Foreclosure, you can't go up, and the bank my agree to it and then the credit takes the ding, or they say no to it, and report something worse. Good negotiations, are a give and take that everyone involved feels like they are the winner, when each party had a bottom line and they didn't have to go that low or to that level, because they successfully negotiated the deal to a better outcome then what they reallly would have accepted.
SMH! It ALL depends on the negotiation and how it is reported to credit. You will be able to obtain another loan, you may even be able to do it immediatly, if it is not a gov backed program, otherwise you would have to wait the 2 years they are requiring (if they can figure out you short sold, as they don't ask). Good Luck
1 vote
Caroline York, Agent, St Petersburg, FL
Thu Nov 6, 2008
It doesn't sound like your realtor is providing you with all of the information you need. Short Sales have strict guidelines and can take up to 6 months or longer to be approved by your bank. You first need to supply the bank with a hardship letter explaining why you need to sell and begin the short sale transaction, It is recommended that you "hand write" the letter. You should make a person to person connection with your bank prior to going into the process. The Short Sales are generally handled by the remediation departments or bad debts departments of the banks. Once you have an agreement with your bank on a short sale and you abide by the terms of your agreement then your credit will not suffer any more than it already has getting you to this point. As you know, Selling short means that you owe the bank more than your house will bring at market price. The bank must agree to accept less than you owe and/or the bank may ask you to sign a promissory note to repay the difference between what the house sells for and what the bank is owed. So even if you sell short doesn't mean that you will eliminate the debt on your house. Remember, The things that hurt your credit are debts that you do not pay back or pay back slower than the original terms of your contract. It generally takes only 6 months to get your credit back on track.
1 vote
Michael Cepa…, Agent, Tampa, FL
Thu Nov 6, 2008
You DO NOT have to be late on your payments to complete a short sale. You need only show a valid hardship. Job loss, death of spouse, divorce are some, you also have interest rate increasing, lower income, military transfer, job transfer, health problems, I could keep going. Fact of the matter is, you need only show a hardship, you can still make your payments and keep your credit in good standing. If you Realtor or short sale negotiator tells you that you must be late, Thank them for their time and find another who knows how to complete it in your best interest. If I can be of any help, feel free to contact me. Good Luck
1 vote
Caroline York, Agent, St Petersburg, FL
Sat May 30, 2015
Short sales affect your credit rating, but the amount it hurts will depend on how your lender reports he short sale to the bureau. There isn't an entry called “short sale” so your lender can report the short sale debt as “paid as agreed,” “negotiated” or “settled.” Naturally you want your lender to report it as “paid as agreed,” since this is the least affect on your credit. A negotiated or settled debt on your credit report will be more negative both by the credit bureaus and future lenders.
0 votes
Dede Hanka, Mortgage Broker Or Lender, Edina, MN
Fri Nov 18, 2011
Dont do a short sale, do a Sale Lease Back
It’s a simple process. Complete a 3 page application
No upfront application fee. Home must be worth at least $200,000
If approved:
1. You will sell your home for what you owe. Then lease it back at a monthly payment 40-60% lower than your current mortgage payment. No need to move, stay in your home.
2. After the lease period ends, you can purchase your home at 90% of the current market value with owner financing!
Leave a message at 763-276-1338 http://www.houseleaseback.com
0 votes
Tim C. Lorenz, Agent, Mission Viejo, CA
Sun Jun 13, 2010
It does depend on how the mortgage company reports the information but it will affect the credit. The creditors will know you did a short sale on the property. However, if you are doing a short sale on a property it requires that you tell the lender what hardship you are haveing on paying the loan. If there is no hardship you cannot get a short sale approval.

If there is a problem paying the mortgage and it is approved by the lender there is less stigma with a short sale than a foreclosure.
0 votes
Jonathan Chi, Agent, Rancho Cucamonga, CA
Sun Jun 13, 2010
Michael is right.

A short sale is ALL about negotiation. The information that Michael has indicated in this thread is actually correct because there are many ways that someone can obtain a loan right after a short sale transaction is finished. I have not done one myself but my lenders have mentioned this to me.

You probably want to talk to your Realtor and ask him/her about how he's negotiating with the bank and communicate your concerns with him/her.
Web Reference:  http://www.JonathanChi.com
0 votes
Bill Gassett, Agent, Hopkinton, MA
Fri Jun 11, 2010
Your Realtor does not know what they are talking about. While every short sale circumstance is different it would be highly unusual for your credit score not to be effected. Generally speaking you can expect a drop of about 75-200 points on your FICO score.
Web Reference: http://massrealestatenews.com/stop-making-mortgage-paym...
0 votes
Joram Clervi…, , Pembroke Pines, FL
Fri Jun 11, 2010
Dear SELL MY HOUSE,

The experts at BrickStone Realty have written an in-depth article about the Short Sale and even included a comparison with the effect on your credit presented. You should take a look at
http://www.brickstonerealty.net the article i'm referencing lives on page http://www.brickstonerealty.net/services/shortsales.html
0 votes
Dianne Hicks, Agent, Rancho Bernardo, CA
Wed Mar 24, 2010
Sell my house
It absolutely will effect your credit, not quite as bad as a foreclouse. You will not be able to buy again for at least 2 years. What rate is your area going up? maybe by the mid summer it will be there. Is there anything (like painting or decluttering) that can impove the home's presentation?
0 votes
FSBOsuccess, Home Seller, 28590
Wed Mar 24, 2010
Any thing less than paying off the mortgage either directly or through a home sale that pays it off 100% will affect your credit score. Maybe not as much as a foreclosure, but it will lower it. Makes me wonder about your realtor!
0 votes
Caroline York, Agent, St Petersburg, FL
Thu Jan 8, 2009
You have asked a very simple question and the only thing we all agree upon is that Realtors don't have the answers to questions about credit. Every lender is different so if you can't get a straight answer from your lender then you aren't going to know the answer until the sale of your home plays out and you check your score. Sorry, but sometimes we really don't have the answers.
0 votes
Michael Cepa…, Agent, Tampa, FL
Thu Jan 8, 2009
Mark, what would ethics have to do with how it is reported to the credit company? Secondly, I didn't say lie, as the 1003 does NOT ask about a short sale, so if the sellers are making their payments during the short sale process, then they never were in default. It is obvious that you do not know what you are talking about, so before you call people out and try to make yourself look superior, know the facts. As long as the mortgage is not gov backed and/or must follow those guidlines, ANYONE can get a mortgage, they are simply limited to the type of program they can qualify for, for example a hard money loan, or have you never heard of this type loan? Think before you let your fingers do the walking. Lastly, I always have my client speak with an attorney and a tax advisor, neither of which have the knowledge and control of what and how the credit bureau reports items. I suppose you tell your clients they must be late on their mortgage in order to qualify for a short sale? Good luck to you in getting a clue.
0 votes
Mark Andren, , Southern Oaks, Bakersfield, CA
Thu Jan 8, 2009
I am appalled at the type of advice some of you are offering on this thread. For example, Mr. Ceperano states, “SMH! It ALL depends on the negotiation and how it is reported to credit. You will be able to obtain another loan, you may even be able to do it immediatly, if it is not a gov backed program, otherwise you would have to wait the 2 years they are requiring (if they can figure out you short sold, as they don't ask). Good Luck” (end quote)

Absurd!!

Mr. Caperano and others need to consult an attorney, go back to real estate 101 and re-read their ethics books. Mr. Caperano, I recommend before speaking about matters of mortgages, you consult a mortgage professional. I urge ALL of you to read Sec VIII of a Uniform Residential Loan Application, Aka “1003”. This section has several questions that clearly inquire about mortgage defaults, deed in lieu, etc… It appears you are advising homeowners about things you know nothing about. Rumors about what “so and so” did on his or her last sale does not make it a fact or ethical.

Mortgage fraud, including misrepresentation of facts on a loan application, is punishable by 10 years in FEDERAL prison and/or a $1,000,000 in fines. (that’s one million for those of you who didn’t pass your math class). It seems you are encouraging your clients to commit fraud.

The only sensible advice was offered by Mr. Eckler. He clearly has an understanding of our business.

Please, if you do not know the answer to your clients’ questions, direct them to a knowledgeable professional. Furthermore, please do not assume because you may have a real estate license that you are part of the aforementioned group.

This business is not a game show hosted by Jeff Foxworthy.

Sincerely,

Mark Andren, California Real Estate Broker
0 votes
Pamela Bicke…, Agent, Indian Shores, FL
Sat Nov 8, 2008
Have the offers you mention been submitted to your lender? These offers should be submitted with a pre-approval letter for the potential buyer, as well as a Market Analysis from your Realtor. IMPORTANT: Your lender MUST agree to report the sale as "Pre-foreclosure" to the credit reporting agencies. This classification is critical to your credit rating.
However, a pre-foreclosure will definitely affect your credit score. A foreclosure would be worse, but honestly, not by much. A "Pre-foreclosure" may help you get into your next home sooner. Loan requirements going forth require a 5-year wait, a 10% downpayment and credit score of 680.
If you are late on the payments, or fail to sell the property for enough money to cover the mortgage payoff, no lender will report you as "Paid as agreed".
It's wise to obtain an acceptable payoff from your lender in the beginning; then the home can be listed for immediate sale.
0 votes
Caroline York, Agent, St Petersburg, FL
Fri Nov 7, 2008
According to realtyTrac 649,917 homeowners lost their homes to default, foreclosure or some other negative financial situation the first quarter of 2008. It went up the second quarter by approximately 23%. These are facts. In our time of economic crises it is unlikely that millions of people will be banned from owning real estate in the future. Yes, your credit may be hit by a short sale but by working with your lenders and other creditors the future does not mean you will never be able to own property again.
0 votes
Bill Eckler, Agent, Venice, FL
Thu Nov 6, 2008
Sell,

Your question is one that should be directed to a real estate attorney.

It would make sense that a short sale would negatively effect your credit and ability to purchase property in the future,
0 votes
Jonathan Chi, Agent, Rancho Cucamonga, CA
Thu Nov 6, 2008
Hi,

Short sale will affect your Fico Score but the point reduction will be less than if the property goes into forclosure. There are proper procedures for filing for short sale, and your sales professional should have knowledge about the procedure.

One thing you have to remind your sales professional at the end of the transaction is to make sure that they request the bank to change the status to "Paid as Agreed." By doing so, it will be easier for you to get credit in the future because on your credit report, it will show "Paid as Agreed."

Please feel free to let us know if you have any questions.

Regards,
Jonathan
0 votes
Other/Just L…, , Fleming Fitch Grant, Holly Hill, FL
Thu Nov 6, 2008
0 votes
Ed Fitch, Agent, Sacramento, CA
Thu Nov 6, 2008
Yes, they hurt your credit if you are not paying on your mortgage. Your lender will report missed payments to the credit bureaus. In this case a short sale could have the same impact on your credit as an outright foreclosure. You might consider contacting a bankruptcy attorney for advice.
0 votes
Search Advice
Search
Ask our community a question

Email me when…

Learn more