Finance, Front Page Feed, Mortgages, Selling Your Home
Short Sales, What They mean to Your Credit as a Seller
February 9, 2009 by Jack DeCook · 3 Comments
Short Sales have been made to seem like a really good thing. They help the seller out of a financial bind. They enable a Buyer to get a good deal on a home. They enable Realtors to sell a home that would otherwise not be saleable. A short sale even gets a bad loan off of a bank’s books. This all sounds really good and I believe that it is. There has been something left out of the equation though.
What does this do to the seller’s credit rating? In all of the articles, blogs and press releases that I have read the subject has not come up. Why is this? I am not in a position to say. I can let you know what it does to a seller’s credit. A Short sale shows up as a foreclosure. I have been told by many that a Short sale is not as bad as a foreclosure.
This is true in a moral sense. A short sale allows a home owner to take the high road. To do the job of the banks REO department in helping to dispose of a troubled asset. As for the Sellers ability to get a loan after taking this “High Road”. They will have a foreclosure on their credit report and will have to wait a minimum of 2 years before another lender will talk to them about getting a new home mortgage. If you look you will find that there are some lenders who are making exceptions to this rule.
So why not just let it go to foreclosure? Because we are “Americans” and want to do the right thing! So how about just toughing it out by making the payments even if they hurt? I understand that many people are in positions which make this option impossible. There are many that are going the short sale route as an easy out. You can stop making payments on your home. Live there for free. Why not everyone else is? When and if the home does sell the lien holder will eat the cost of carrying the house during the sale period because the Seller is doing the right thing.
I hope that you have found this blog thought provoking. I applaud those who are genuinely trying to do the right thing by helping the owner of the mortgage loan get out with a smaller loss than they would have realized if the home where to go through a traditional foreclosure. To those of you who are in a genuine bind due to loss of income or value in your home and those who got swindled into a bad loan with increasing payments, I offer my condolences. In this case I would recommend that you talk to a Realtor who specialises in distressed properties. You will find their assistance to be quite valuable.
Sincerely, Jack
Jack,
Are there better strategies for someone who is upside down on their home and without the necessary income to continue to keep the mortgage current? If someone has to go down the Short Sale route is there a best way to go about it?
Glenn
If a home owner wants to keep their home it might be possible to negotiate a “Loan Modification” from their lender. In this situation the home owner would contact the lender and state that they could continue to make payments on the loan if the rate was a little lower or if the term of the loan where extended or both. I have seen this done in the past but it is unusual.
The loans that I saw this occur on had a good equity position, low loan to value. I have heard of some lenders doing this recently, even without being asked to do so. A Loan Modification is a good way for a lender to convert a non preforming asset into one that is being paid as agreed.
If the loan modification is not available then I would recommend calling the lender early on, before you become late on a payment, and let them know that you are not going to be able to make your payments. Clean the home and call your Realtor. As I am sure you have heard, or will hear, the short sale process is not fun. Your Realtor should be able to help you through the process. The faster the home is sold the sooner the derogatory credit will fall off of the homeowners credit report.
Sincerely, Jack
Jack,
The angle you mention is not my understanding and not what I have seen. It takes negotiation, but the Short Sale can be negotiated to show up as “paid as agreed” on a persons credit. My understanding is that it does take a knowledgeable and well trained listing agent to get this done, but that it is done regularly. Also, the 2 years it takes to get a loan after a Short Sale is far better than the 5 years it takes after foreclosure.
You don’t mention your sources of information. I am not sure you would be able to find a credible backing for your perspective out in the marketplace.