I know I’ve heard the reasons for this, but can’t seem to find them. So, when someone is super mad and wants to just stick it to the lender, what would be the reasoning to not do that and opt for a short-sale instead? Thanks.
Dean
Consequences to credit and ability to buy a home in the future.
Short Sale: No foreclosure or collection will appear on your credit. The short sale will show as a “debt paid in full” on your credit report. However, if you were late a few times, it will show the 30-60-90 days late on the account.
If you keep up payments during the short sale approval/selling process, your credit will not be adversely affected and you can reapply for a new home loan at any time.
Foreclosure stays on your credit as a “collection” and can take as long as 7 years to clear. Although there is some debate as to how much more in points a “collection” or “foreclosure” derogatory mark is on your credit, it is worse than just lates and a paid in full. On closer inspection, an underwriter may be able to come to the conclusion that a couple of lates and a paid in full account may have been a short sale, but they would need some other proof outside of the credit report that is what indeed happened.
Deal Hunter,
So the home owners credit report will say “paid in full” because the lender accepted the short payoff as a full payoff?
Doesnt where you are in the foreclosure process determine what will be reported to the credit bureau?
Technically, a sucessful short sale results in a settlement of the mortgage obligation (strictly for 1st Trust Deeds that are NON-RECOURSE). On the 3 credit bureaus reports, a settled loan can only be described as “paid in full.” Revolving debt or recourse loans that have been settled are described as “account closed” and the balance at 0.
You are right about the timing of the sale. If the property is sold while the account is still live and in play at the originator or lender, then it is a settlement. If the sale occurs after it has been discharged by the lender to a Trustee, then it may show up as a foreclosure or collection.
I’ve negotiated a short sale by bringing an offer a little more than 24 hours prior to trustee sale. The trustee had me fax in a form to the lender and luckily the lender decided to entertain the offer. The whole property/loan/case was RETURNED to the lender (Indymac). I dealt with only Indymac after that - all others, collection agency, trustee all went away.
Thats sweet. It seems everyone has a different answer when it comes to what will happen to the HO credit when doing a short sale. I just want to shoot it straight and let them know as honestly as I can. I have found when a HO believes that and trusts you then it is so much easier to work with them :biggrin