Short Sale & Your Credit Score

How will a short sale of my home affect my credit?

How will a short sale of my home affect my credit?

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Bill's Answer
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  • Understand whether or not you will be responsible for a deficiency balance prior to finalizing your short sale.
  • Compare the effects on your credit rating of a foreclosure to those of short sale.
  • Speak with an experienced attorney, before you decide to pursue a short sale..

Editor’s note: See the Bills.com resource Short Sale, Foreclosure & Your Credit Score to see Fair Isaac & Co.'s answer to this question.

Generally speaking, a short sale occurs when a homeowner who is behind on his or her mortgage payments, and who owes more on his home than it is currently worth, contacts the mortgage lender asking the lender to allow him to sell the home for less than the balance of the mortgage.

For example, if you owe $100,000 on your mortgage, but are only able to sell your home for $80,000, you would need to have your mortgage lender agree ahead of time to allow the sale to proceed. In fact, there is little use in putting your home on the market until you, or your attorney, have spoken with your mortgage company's loss mitigation department to discuss proceeding with a short sale.

Many lenders will authorize short sales in an attempt to prevent property from falling into foreclosure; however, some lenders will not allow short sales to proceed. Usually, no lender will authorize a short sale unless the borrower is already in arrears on his mortgage, as the lender will see this as evidence that the borrower can no longer afford the home. In addition, your mortgage lender's loss mitigation team will probably want to see documentation of your income and assets to verify that a financial hardship exists and that you truly cannot afford the home.

If your mortgage lender approves a short sale, the next step is to find a buyer willing to pay a reasonable price for the property. Some people try to take advantage of individuals who are trying to conduct a short sale by offering significantly less than the home is worth, hoping that the owner will accept the offer out of desperation. Once an offer is made on the home, you will need to consult with your lender, and the lender will have final say-so in whether or not the sale can proceed at the offered amount. When first talking to the loss mitigation department, you may want to inquire as to what amount the mortgage lender considers reasonable so you can gauge what offers you can expect to have approved.

If you are successful in selling your home in a short sale, you may still be liable for the difference between the amount you owed on the mortgage and the amount of the sale. This is referred to as a deficiency balance.

If you owe a deficiency balance, your lender may be able to pursue you for collection of the debt, depending on your state's laws regarding deficiency balances on homes. Some states, such as California, do not allow for the collection of deficiency balances on purchase money loans. However, if you live in a state which does allow for the collection of deficiency balances, your creditor may be able to sue you and obtain a judgment for the amount owed.

Many creditors do not pursue former homeowners for deficiency balances even in states where they are allowed to do so, preferring to use the loss as a tax write-off. I encourage you to discuss this with your mortgage holder and an experienced real-estate attorney prior to proceeding with a short sale. An experienced attorney should be able advise you of your state's laws and may also be able to assist you in negotiating with your mortgage lender.

Credit Score

In regards to your credit score, the negative credit impact of a short sale is less than that of a foreclosure. A short sale will not appear as a foreclosure on your credit report, and therefore only the previous delinquency on your mortgage will appear. Also, I believe that most mortgage lenders report a mortgage that is paid through a short sale as being in a redemption status.

Although the delinquency and change of status on your mortgage loan will certainly lower your credit rating, from my experience, the negative impact is less than the negative credit implications of an actual foreclosure. If you must choose between a short sale and allowing your home to go into foreclosure, from a credit perspective, a short sale is the wiser choice.

Again, I encourage you to speak with an experienced real estate attorney to discuss the details of your situation to help you determine the best course of action in your circumstances. To learn more about foreclosure, short sales, and other options available to homeowners struggling to meet their mortgage payments, I encourage you to visit the Bills.com Foreclosure page.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com

124 Comments

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  • 35x35
    Jul, 2012
    Elle
    So here is my dilema/situation... I am currently underwater by 50% (even after a complete kitchen renovation) and am struggling to make payments. I am consistantly one payment behind for the last year and couple months. I recently had to upgrade my vehicle ( I upgraded modestly) but, after 7 years of not having a car pament and cheap insurance the increase has taken its toll. I have not had a raise in over 10 years so things are starting to pile up, and to add to that I regretably took out a small personal loan with a high interest rate to catch up. My current score is right around 600. Now after bearing all (for the first time out loud, sigh) I have located a house for sale by our city in my dream neighborhood historic district that recently had gone through some extensive water damage with a broken pipe and was left to sit with the basement full and a foot or two of water up on the first floor. I am no stranger to a hammer and nails and I love to restore the damaged old in our world so I am not shy about the work that will need to be done, nor afraid to hire when I realize I may be out of my depth project-wise. My question is, what are my options? Can I short sell my home and still be able to obtain a rehab loan of sorts for the new property? (My parents offered to take me in if it is only a matter of a couple months) I guess I should state that the rehab loan (to summerize all those loan terms) would be at least 20-30 thousand less than my current mortgage. I also should add that I do not have much available to put towards a down payment (under 3,000). I am dying (to put it lightly) to get out of my current neighborhood as it has taken a turn for the worse the last 5 years and, I am a single woman that would feel a little more comfortable elsewhere. -Signed, Desperately in need of inheriting a hidden family forturne
    0 Votes

    • 35x35
      Jul, 2012
      Bill
      When is the last time that you missed a payment? Depending on the type of loan you have, you might be eligible for a refinance loan (HARP or FHA streamline), a loan modification (HAMP or bank modification), or perhaps a short sale program (HAFA).

      If you want to do a short sale, then you will have to speak to your lender. You will want to see how much principal reduction the lender will agree to and also if your deficiency balance is subject to any anti-deficiency non-recourse laws.

      If you are current on your loan it is possible that you can get a FHA 203k loan, although this will also depend on your other debts, including how you finalize a short sale. Your maximum loan would be about $96,000 based on a FHA loan which requires at least a 3.5% down payment. You would also need money for the closing costs.

      I recommend that you start by speaking with your servicer about a refinance (if you are eligible for a HARP mortgage) or a loan modification, that will allow you to lengthen your loan to more affordable payments. You might also look into a credit counseling plan to help you manage your other debts.
      0 Votes

  • 35x35
    Mar, 2012
    Anthony
    My situation is almost exactly the same as what Jason S. posted. My condo is very underwater. My HOA will not allow me to rent it out because they have reached the rental ceiling for our community. I am planning to refi if possible with harp 2.0. That might help lower my payment a little but it will not help me with the major issue which is that my wife and I could easily afford a mortgage payment on a luxurious single family home 3x the size of my current condo if I wasn't tied down by this condo, with no hope of getting back to its original price within the next 5-7 years. I've been scouring the internet trying to find a solution, but I keep reading the same answers: the conservative folks say "pay your mortgage and be grateful!", the liberal folks say "bail out". I just wish there was some way to cut ties with my current place and not feel guilty for further screwing up my neighbor's property value. I REALLY don't want to miss out on the opportunity of historic low interest rates and much lower home prices that will benefit us for at least the next 30 years! I bought my current place in 2005 right around the worst time unknowingly to me and all others. And now is the worst time NOT to buy a home. I don't know if there's anything new you can tell me that I haven't already read. I guess I'm just writing all this to say I'm frustrated and show solidarity with everyone else in my boat..or submarine actually. Thanks.
    1 Votes

    • 35x35
      Mar, 2012
      Bill
      Anthony, I admire the consideration and concern you have for how your actions could affect your neighbors. I think that it is worth factoring in your decision. At the same time, you should look at all your options.

      For instance, if you have a non-recourse loan, working to negotiate a short sale or walking away from the home may make sense. Other factors to consider are: what your HARP mortgage payment will be, what rents in your area are, would you be happy renting until your credit improved (should you walk away or do a short sale) enough to buy another home.
      0 Votes

  • 35x35
    Mar, 2012
    Jason
    My current situation is as follows: I (my name is the only name on the loan(s), not my wife's) am currently underwater on my home by about $35K. My 1st (and 2nd) mortgage is NOT serviced by either Fannie or Freddie, therefore (at this time) I'm not eligible to refi under HARP. I am current on payments and can afford to continue to make them going forward. My question is this: going forward, having a growing family with a need for a larger home and the income between my wife and I to be able to afford a larger home (if not for my current, underwater home), what options/suggestions do I have?
    0 Votes

    • 35x35
      Mar, 2012
      Bill
      I have no bright ideas or tidy, pain-free options for you. My best idea? You mentioned you alone are on the existing loan, which leaves your spouse as a credit score lifeboat if you cannot exit the loans cleanly. Allow me to explain: Let us say your spouse qualifies for a home loan alone, without including you as a co-signer. She buys the new house in her name. Meanwhile, you quit the old house and either short-sell it or if the mortgage servicer is not reasonable, allow a strategic default. Worse-case scenario, the lender(s) files a lawsuit against you for the deficiency balance, and you either negotiate a reasonable settlement or file for bankruptcy that will discharge the deficiency.
      0 Votes

    • 35x35
      Mar, 2012
      Jason
      I appreciate your response. I was thinking similarly to your suggestions. Along those lines, in an attempt to avoid paying the deficiency to my lender after a Short Sale, are lenders (B of A, in this case) willing to get creative in order to maintain business. By "creative" I mean more specifically, would a place like B of A be willing to forgive the deficiency owed on my part if my spouse, purchasing another property without my co-sign, was willing to purchase through their lending? It may be analyzing apples (me) and oranges (my spouse), but I'm curious if you've ever witnessed any type of "arrangement" like this before?
      0 Votes

    • 35x35
      Mar, 2012
      Bill
      A mortgage servicer, such as Bank of America rarely, if ever, owns its home loans. A mortgage servicer has a fiduciary duty to each of its loan investors. That means it cannot put its own interest, or the interest of another investor, above any other investor.

      What you suggest would place the investor of the old loan at a disadvantage to the new investor.
      0 Votes

  • 35x35
    Feb, 2012
    Rick
    My ex and I were divorced in 2009. While we were married we purchased a new home in 1996. She was given the house in the divorce settlement and was listed as fincially responsible for it. I signed the deed over to her immediately after the divorce and thought I was done with it. I found out a year leter that I was still on the loan and that she had fallen behind on the payments. I petitioned Bank of America to get off of the loan but they refused it. It is now up for Short Sale. Is it possible to get this fixed on my credit report after the sale goes through?
    0 Votes

    • 35x35
      Feb, 2012
      Bill
      A home loan is a contract between a lender and borrower(s). A divorce order/decree does not change the contractual relationship between the home loan lender and borrower(s). A divorce decree orders parties how to divide their assets, but is not binding on third parties. In other words, you can wave your divorce decree in front of Bank of America, and it will reply, "We are not a party to that decree."

      You can try to have this derogatory removed from your credit report in the future, but if the derogatory contains accurate facts, the credit reporting agency may ignore your dispute.
      0 Votes

  • 35x35
    Feb, 2012
    Bryan
    I am active duty military and bought a home in AZ in 2009. I am now anticipating permanent change of station (PCS) orders sometime this year and am considering a VA compromise sale on my property as it is significantly underwater. Does a VA compromise sale hurt a credit score as much as a regular short sale? I am current on all the payments and have excellent credit. I should also mention that I was forced to rent out my home during back-to-back deployments to Iraq to avoid it sitting vacant and being vandalized like so many empty homes in my neighborhood. I am currently renting an apartment for my wife and I because the renters are still in the home on a yearlong lease. The current renters may be interested in buying the home if the price is fair. Does having renters in the home that currently cover the mortgage impact my chances of doing a comp sale? Thanks for your help
    0 Votes

    • 35x35
      Feb, 2012
      Bill
      Bryan, my research indicates that the VA Compromise sale will result in a derogatory notation that the debt was 'settled for less than the full amount owed' (or some other phrasing to that effect). It is not noted as a foreclosure, as best as I can determine.

      I also see no requirements that prevent you from renting out your home, especially given your PCS and your earlier deployment, though you should discuss this with the VA. Normally, VA loans are restricted to use for a primary residence, so there can be repercussions if the VA feels that you are trying to turn the home into an investment property.
      0 Votes

  • 35x35
    Feb, 2012
    Jen
    My boyfriend bought a house at the top of the market in 2007. He now owes close to 170 and the house is worth about 109. At the time of the purchase he was a bachelor, so a 1200 sq ft house made sen, then we got together and planning on staying together. I came wi the baggage of 3 kids and him and I had a baby as well. A 1200 sq ft house is just not working well for our family and we are trying to figure out how to get out from under this house. He makes a fairly decent income and is capable of the payment, but we are starting to struggle since we had to update cars as well. He also has a 800 fico score. Our question is, with good credit and a surviving income, is their any chance of obtaining a short sale from the bank? Is it a good idea to speak with a realtor orthe bank before we move forward with anything? We have no problem with the thought of renting till the market recovers. We just aren't sure how the bank would perciee our renting till the market recovers. We just aren't sure how the bank would percieve our hardship. Any advice would be great.
    0 Votes

    • 35x35
      Feb, 2012
      Bill
      In addition to the facts you shared, the mortgage servicer (the business you send your home loan payments to) will require a financial disclosure that includes your family income, expenses, and other debts. The mortgage servicer will not make a final decision on a short sale until a buyer comes forward with an offer.

      All real estate and rental markets are local, so I cannot comment on your idea of renting the property. The downsides of being a landlord are many, but for new landlords there is one more — no history. If you rent the property, you will not be able to count it as income for the purposes of qualifying for a new mortgage.

      My advice? Contact the servicer and ask what its qualifications are for a short sale. If you qualify, then proceed accordingly. If not, consider a strategic default.
      0 Votes

  • 35x35
    Jan, 2012
    Cindy
    In January 2009, I was transferred from AZ to CA by the company I worked for. It took over 2.5 years for my condo in AZ to sell and the bank accepted a short sale where I am not responsible for the balance. I remained current on payments for 2 years until I ran out of money to pay the mortgage and rent in CA. I pulled my credit scores at the end of December and they were back to 725. Is it possible for me to get another mortgage this soon after the short sale based on my credit score? Or would I be able to get a mortgage with a co-signer at this point in time or will I need to wait the 2 years that a local mortgage company said I needed to wait?
    0 Votes

    • 35x35
      Jan, 2012
      Bill
      In general, a conventional loan requires a waiting period after a short sale. According to Fannie Mae's selling guide, October 15, 2011, there is a minimum waiting period of 2 years, after a short sale. (Unless there are extenuating circumstances the maximum LTV is 80%). Since your credit score is very good, it is possible that your lender reported the account as paid, and not as settled. If you were not delinquent, then this would also not adversely affect your credit score.
      0 Votes

  • 35x35
    Oct, 2011
    Wayne
    We have a contract to sell our home and will owe the bank an additional $150K to fully settle the closing costs and mortgage. We feel responsible to do the right thing and pay the bank the amount owed, but will need time to do so. We are agreeable to a promissory note for the full deficit. The bank has agreed to an acceptable interest rate for the new note and has agreed that they will not perform any adverse credit reporting. However, they state that they will describe the new note as "short sale deficiency note". We have a 760 plus FICO score currently and have never had any delinquencies on any debt. My concern is whether simply stating that we have a "short sale deficit note" will negatively impact our credit rating if no other adverse reporting happens. To the contrary, my second question is that with all of the recent foreclosures, does the fact that a borrow has stayed current with a mortgage and agreed to take on and stays current with a deficiency note arising from a short sale not indicate that this person is a good credit risk?
    0 Votes

    • 35x35
      Oct, 2011
      Bill
      In my opinion, a short seller who never missed or was late on a payment should have no negative impact on their credit score. A short seller who was forced to stop making payments as a condition by the mortgage servicer to enter into a short sale agreement should also see no negative impact on their credit score. On the other hand, a short seller that stopped making their payments voluntarily, and was cajoled by their servicer to short sell the property should see an impact to their credit score. Alas, I do not speak for Fair Isaac & Co., Plus Score, or Vantage Score.

      The exact words in the notation do not seem to matter. What seems important is how the credit score algorithms weigh the short sale itself. The fact that you have no delinquent payments will weigh in your favor. Allowing the short sale to season for a year or two will also reduce its impact.
      0 Votes

  • 35x35
    Oct, 2011
    Lauro
    I short sold my house, the short sale was reported on my credit but the credit remained the same, didn't go down. Could it still go down later on? I never stopped paying the mortgage.
    0 Votes

    • 35x35
      Oct, 2011
      Bill
      I assume you mean your credit score did not decrease. I have four questions for you:
      1. How is the short sale noted or described at
        1. Equifax
        2. Experian
        3. TransUnion
      2. There are different algorithms to create a credit score. Was your credit score measured using
        1. FICO
        2. PLUS Score
        3. Vantage Score
      3. What is your present FICO, PLUS, or Vantage score?
      4. When did your short sale close?

      Your answers to these questions will help me understand why your credit score has not decreased, and whether it may decrease in the future. Please return here to answer these questions.

      0 Votes

  • 35x35
    Oct, 2011
    Scott
    Bill - Here is the backstory. My new wife and I are living in a home in AR her ex had financed soley under his name in Aug of 2002. The house cost $185K, my wife put down $40k and he put down $25, balance of $120K. He took out a 2nd in Nov 0f 2002 that she was not aware of for $32K, and then did a refi on the 1st in 2007 taking out another $55k. So first bal now $170, 2nd $33K, $203k total. The home is valued at $285. Her ex did write up a "land agreement" between her and him but it was not recorded until 2010. This summer her ex defaulted on both notes, to sep banks. The smaller local bank started foreclosure on the 2nd for $33K. They are claiming that they are SUPERIOR and that the other bank and all other interests comes after them. Can a second claim being superior if the first bank did a Re-FI after their note? It seems that the bank approving the second would have had to have known about the first when they approved and ran credit to begin with. Why does this little local bank think they have more interest than the bank that is owed more? Does Doing a Re-FI on the first when you have a second make which bank number 1 or 2 during a forecluse proceeding, this little bank thinks they are first refering to the RE-FI date, not the original date. I'd like to propose a short sale and just pay both off and get a new loan but I don't know who or if both would need to agree...as well as probably needing permission from my wife's ex.
    0 Votes

    • 35x35
      Oct, 2011
      Bill
      What you described happens if the junior (aka, the second) never agreed to subordinate when the senior was refinanced. Why? Mortgages or deeds of trust are "first in time, first in line" in terms of priority.

      An example to describe my point: On January 1, Owner gets Mortgage A for $50,000, which is recorded promptly by the county clerk. On March 1, Owner gets Mortgage B for $75,000, which is recorded promptly. Mortgage A is the senior loan — the first mortgage — because it is first in time. Let us say Owner refinances Mortgage B in June, and then records promptly. Mortgage B is still in the second position because it was recorded second. Let us say Owner refinances Mortgage A in October, and then records promptly. Mortgage A moves into the second position because it was the last mortgage recorded, and Mortgage B moves into the first position because it is the oldest mortgage — it was the earlier of the two recorded mortgages.

      Typically, when a senior refinances, it asks the junior to sign a subordination agreement, in which the junior agrees to stay in the second position.
      0 Votes

  • 35x35
    Oct, 2011
    Robyn
    We are busting out of the seams in our starter house and would really like to relocate to the mountains from Fl (both jobs allow for this). We paid $240k for the house in summer 2006, it is now estimated at $170k (ouch!)and we owe $190k. Our lender (local bank) said that we can sell for whatever we can get (after realtors fees $160-$165 we hope) and then have the deficiency balance. They said they would set up an unsecured debt for the deficiency, or we could look at settling for less. I believe that we would qualify for the homeowners debt forgiveness act, so hopefully taxes wouldn't be an issue. What is the best route to take? Should we go for a super long, super expensive unsecured debt? Or try to settle? Which is better financially and credit-score wise? Our mortgage is manageable but only because we work very long hours to make it so. Our family's quality of life has suffered drastically and it's absolutely time for us to get out from under this house. Advice?
    0 Votes

    • 35x35
      Oct, 2011
      Bill
      If you can get the lender to agree to not report the sale as a short sale, if you either agree to a payment on the deficiency balance or settle it in full, that would minimize the damage to your credit report. If a short sale is listed, it will likely impede your ability to qualify for another home purchase loan for a number of years.

      Life is often a balancing act, weighing the pluses and minuses of one decision against those of another.

      If you decide that moving is the highest priority, then you may have to accept damage to your credit or paying a higher financial cost to repay the debt in full. One factor to consider is the interest rate that the bank would accept were you to accept the balance as an unsecured debt.
      1 Votes

    • 35x35
      Oct, 2011
      Robyn
      Thanks so much for the thoughts. You are the first resource that has confirmed my fear that a short sale has a long-lasting negative effect on credit. Many other resources make it sound like a one-two year problem. Also, good to know that a settlement would affect us (the bank all but promised me that it wouldn't) but that it's still a better bet than short sale. I am very grateful to have found your site and truly appreciate your advice!
      0 Votes

  • 35x35
    Oct, 2011
    Tanya
    My husband and I have rented out a condo nine months ago, used to be our primary residence. However we still have to cover additional $400 after the rent every month. Its current value is about $150k while we owe $196k. We are current on the payment and seek for an opinion. We may keep paying until the market is up but don't know when. It doesn't make any senses to drain the money. A short sale is another option but the negative impact on the credit is a concern. The loan is under my husband only and he indeed concerns about his credit as he owns a business. Please advise. Thanks.
    0 Votes

    • 35x35
      Oct, 2011
      Bill
      There are no perfect, pain-free solutions to the situation you described. Foreclosure and short sale have negative consequences for a homeowner's credit score.

      If the residential real estate prices in your area are rebounding, then you may want to hang on until you can sell the property at break-even. However, if the housing prices are going nowhere but sideways or down, then consider a short sale or allow a foreclosure now.
      0 Votes

  • 35x35
    Sep, 2011
    Kerry
    You do not need to be behind to short-sell. In addition, you just need to show a hard-ship, and they come in many different forms. You need to find a realtor that has done a lot of short-sells before.
    0 Votes

    • 35x35
      Feb, 2012
      M
      I live in MD, and cannot afford to make my payments due to pay decrease/job change. Loan modification was very little help, if any. My payment went from $2300 to $1700. I bring home $2400/month and live paycheck to paycheck. Bank will NOT offer any more help, keeps telling me to proceed w/short sale or foreclose. Bought the house for $310 in 2006, it's now worth $150 if that. If I proceed with a short sale and wait a year or 2, will I be able to buy another house that I can afford? How much will that affect my credit score (100-200 points)? My wife is not on the loan, she was on the Deed though, but was taken off couple of year ago. If she buys a house year or 2 after I short sale my house, can I be the co-borrower on her loan? Will she have any difficulty getting approved? Will the interest be high? My wife doesn't have any employment history due to school to steady income, she just started working. Thanks, any help would be greatly appreciated.
      0 Votes

    • 35x35
      Feb, 2012
      Bill
      As the article states, Fannie Mae's selling guide states that a two year waiting period needs to happen after a short sale, before you will be approved for a new loan. Also, your new loan may be capped at 80% LTV.

      How many points your credit score will drop depends in part on where it stands now. Please read the Bills.com article that discusses what FICO says about the drop in your score.

      If your wife wants to buy a home, she will need to demonstrate two years of steady income in the same or job or the same field of work. You could be co-borrower, once the two year period, post-short sale, has expired, if you meet other lending requirements.
      0 Votes

  • 35x35
    Sep, 2011
    Todd
    My wife and I are current on our mortgage, but we are looking to move out of state for work. We had a realtor come to the house to give us what they thought we could sell the house for. She said 75k-80k at the most, most are going for 60-70k in the nieghborhood, but are in need of updates, where ours is updated. We owe 95k on the house, so we are about 20k underwater, and do not have anything in savings to cover the difference. what is the best option to sell the house. is a short sale going to hurt us that bad since we are current on the payments. we are not struggling we are just looking to relocate.
    0 Votes

    • 35x35
      Sep, 2011
      Bill
      Short sales can be great deals where the home seller, the lender, and the buyer all make the best of a bad situation. Short sales can also be opportunities for mortgage servicers to needlessly harm a homeowner's credit score, drag out a sale for no apparent reason, and hold the homeowner and buyer hostage while it invents costs and expenses at the 11th hour it expects others to pay. Unfortunately, I am not being cynical as I have first-hand experience with unscrupulous mortgage servicers.

      The devil is in the details. Contact your mortgage servicer, explain your situation, and ask for a contract to sell the property as a short sale. Before you sign the contract, take it to a lawyer who has experience in real estate or contract law. Ask if allowing a foreclosure is a better deal for you given the laws in your state, and act accordingly.
      0 Votes

    • 35x35
      Sep, 2011
      Eric
      Todd, It is wise to listen to the Bills.com advice. My wife & I just completed a short sale a couple of months ago where we were current on all of our payments and relocating over 100 miles for a job relocation. As a result we had to sell our home because we were moving. Even though we made all of our payments and everything was current, we just discovered the other day that my wife's credit dropped from 800+ to nearly 600. The short sales affected her credit score by 200 points. Also, some previous experience that we were told was that short sales are not as bad as foreclosures and if the short sale was due to job relocation, then we should be able to buy a new house right away as long as we kept everything current. After the short sale, all of the banks we spoke with told us that they treat a short sale no different than a foreclosure and we will not be able to borrow for a new house for at least 2 years.
      0 Votes

  • 35x35
    Sep, 2011
    Dalia
    I am a senior banker and I know that much of what you said regarding a short sale is correct. Although, I disagree regarding the credit reporting after a short sale. Most often it is reported unpaid and by the end, it's reported as a foreclosure. It damages peoples credit for years no matter what they do, but credit scores can be rebuilt over time. Our credit system in the US has not been revised for decades and is very old. In the computerized system, there is not a designation of "redemption or short sale". Until the credit reporting system is changed, this is what we endure. From hundreds of people I have spoken to and what has come across my desk, I have not seen or heard, anything different. In addition, after closing - the bank gives the seller a 1099 (as earned income) for the remaining difference. That will have to be reported to IRS. One of the ways to get out from declaring that as income, is to file a bankruptcy (chapter 7) which will ruin credit as well. Sometimes,the short sale difference, the sellers earned annual income and tax write offs can impact the amount of taxes owed. This is why speaking to a CPA or tax accountant, ahead of time, is very important. I also highly recommend a consultation with a real estate lawyer and a bankruptcy lawyer - before proceeding.

    Short sale owner, know the truth and beware! By the end the only ones gaining from the grueling short sale process are the bank and the Realtor. The seller suffers tremendously as he goes through the same pains as a person who merely walked away and the house was foreclosed on. Sometimes, putting the energy into survival and moving forward quickly to recover, can be a better way to manage the damages. Let's face it, if a person is doing a short sale, they are most likely having the challenge of their life just to put food on the table. Foreclosure or short sale....which one would you choose?
    2 Votes

  • 35x35
    Sep, 2011
    Matt
    I live in Arizona and received my house through a divorce. The creed stated I was to refi to get her name off the mortage and she was to sign the title over to me. I was unable to refi without going further under water. The lender told me the court would not make me refi if it was going to make me go under water (not sure if that is true or not). Well that was then now the house has lost additional value (about $25-30K under water). Thinking about a short sale now but I don't really want to effect her credit but not sure if that can be avoided. Any guidance? If the divorce papers say she is not responible for the house can she use the creed for any future lenders of her's or to keep her credit score or decrease the hit to her credit?
    0 Votes

    • 35x35
      Sep, 2011
      Bill
      You are not alone in this predicament. You may have the best of intentions, but market forces are working against you. Unfortunately, you cannot prevent harm to the credit scores of either you or your ex-spouse if you allow a foreclosure or short sale. A divorce decree will not convince the consumer credit reporting agencies to not ding your ex-spouse's credit score. See the Bills.com resource Short Sale, Foreclosure & Your Credit Score to learn more.
      0 Votes

    • 35x35
      Sep, 2011
      Matt
      If I decide to move forward with a short sale would it be beneficial to have my ex-spouse sign a quit-claim so I can put the house in my name only? Would this make the process go a bit smoother or does it not matter? Thank you.
      0 Votes

    • 35x35
      Sep, 2011
      Bill
      If you sell the property and your ex-spouse is on the title, your ex-spouse will need to sign a deed at some point anyway, so signing and filing a quit-claim deed now will prevent this step later.
      0 Votes

  • 35x35
    Aug, 2011
    don
    Have you ever heard of Wilshire Holding Group inc. The offer to buy your property at what you owe and force your lender to foreclose. The then offer you hud1 docs and proof of full price for you home. This is supposed to help you get a new mortgage. Does this work?
    0 Votes

    • 35x35
      Sep, 2011
      Bill
      Don, it sounds like a total scam to me. I believe they are not buying your home, but getting you to quitclaim your interest, hitting you up for a fee, and leaving you on the hook for the loan balance and delinquency. They can't assume your loan without your lender's permission. I would NOT sign ANYTHING they offer you.
      0 Votes

  • 35x35
    Aug, 2011
    AC
    I had a short sale close in May 2010. It does not show up on my credit. It is showing up on LP and DU. Any reasons why?
    0 Votes

    • 35x35
      Aug, 2011
      Bill
      It appears that both Loan Prospector (LP) and Desktop Underwriter (DU), which are automatic underwriting systems used by Fannie Mae and Freddie Mac, have access to the short sale information through some other data source, though I am not sure which source they are using.
      0 Votes

  • 35x35
    Aug, 2011
    Robert
    Just stumbled across your site and really hoping you can point me in the right direction... Background: Military member w/ family stationed overseas most of my career. Returned to the US, jumped in to the "American Dream" w/ a VA Home Loan and purchased a wonderful home (Great schools, pool, location, etc...) reasonably within our means, and as luck would have it, lost over 50% it's value in less than a year. Due to having a steady military income, I continued to make my payments and did my best not to let this discourage me. It was worth $279k to me when I bought it so regardless of what someone else says it's worth now, I told myself it was the same home and pushed forward trying to be responsible. However, 4 years later, I've retired from the Air Force and had to accept an offer from a company in Florida due to poor employment in Arizona. Based on the fact that I can't rent the home for close to the mortgage payment and have incured a hardship situation due to family medical bills and this move, I'm considering to put the home up for short sale and need guidance. So, the points of note are: 1. It's a VA Home Loan as the only loan (no second mortgage). After speaking with them, I discovered they had no defined expert and was only able to receive general 'advice' from the representative. I will continue to research just in case, but at this time, the info I have from them is that the Government and/or VA won't pursue me for any losses they incur. However, this will drop my future available VA Loan eligible amount by approximately 50%. Do you have any information specific to VA Loans? 2. My understanding at this point is that Arizona has laws protecting the seller (me) so the bank cannot come at me for the difference between the original amount and the short sale amount. Again, do you know specifics? 3. I have read and understand your warning regarding being very careful in the contract to ensure they don't slip something in there making me responsible for the difference. Is there something specific in the writing I should watch for in this case so I don't get caught up and overlook it due to "legal-ese"? 4. Lastly and most important is in regards to the credit impact and payments. My goal is to continue to make payments until a sale goes through. I have an excellent credit score and would like to do whatever I can to keep it as undamaged as possible. However, the realtor has voiced that she feels the banks won't even consider working with us until I've stopped making payments for a number of months. Is this true and is it impossible to work this process while trying to be responsible? I know this is alot of information and questions, but any advice, guidance, etc... that you can give would be a godsend right now. Thanks in advance... Robert
    0 Votes

    • 35x35
      Aug, 2011
      Bill
      My understading is that the VA does have the right to come after you for a deficiency balance, but they do not do so as a matter of course. While there are protections in Arizona for borrowers, it seems that the federal rules that govern the VA loan supersede the state laws.

      You really need to speak to an attorney, to get more information about this. An attorney wil also review any documents involved, so you are not confused by the legalese. An attorney may also be very helpful in negotiating a short sale, making sure that your financial hardship is presented to the lender in the most effective manner. The attorney will also be an effective advisor about the need to stop making payments or whether you can accomplish a short sale without doing so. It doesn't seem to make a lot of sense to punish someone who is trying to be as responsible as possible, but each lender can set its own rules for short sales. Obviously, missing mortgage payments severely harms your credit score, so you want to try to accomplish the short sale without doing so if possible. The realtor, no matter how good she is, may not be giving you the best advice.

      It is my understanding that you lose your VA exemption until you repay the VA, not that you lose 50%.
      0 Votes

    • 35x35
      Aug, 2011
      anonomous
      We went through that exact scenario on our VA mortgage in 2008 and are now pursuing a purchase with our remaining 50% entitlement. We will pay a higher funding fee (3.3% at this time) and the loan will be treated as a "VA BONUS ENTITLEMENT" loan, as if we still had our first home and are buying a second, but the loan is pre-approved and we are shopping the market with our lowered amount as our budget. One fine-print issue we have discovered is that the funding fee, if financed into the loan, cannot be added on top, as it was first time around. With Bonus Entitlement rule, the home price plus F/Fee must not exceed our reduced entitlement, so we have less to offer on a home than we have available, allowing for 3.3% F/Fee rolled in, and we cannot borrow above that cap at all. Our new limit is the absolute maximum, and any amount over we will need to pay in cash as our downpayment, if we choose. Since we want no downpayment (VA's biggest advantage) we have our entitlement, less approximate funding fee, and we are looking for a seller who will take that as our highest possible offer. BTW, we are now based in CA and here banks cannot pursue shortfalls, either, so by honoring our mortgage payments, HOA dues, taxes, etc right up until close on our short sale, we kept our credit intact. Best of luck! Hope this helped.
      0 Votes

  • 35x35
    Jun, 2011
    jean
    we stopped making the $3000 a month mortgage payments in aug of 2010 and finally sold the house as a short sale in June of 2011..do I have a credit score at all any more..all our other credit ( credit cards, car payments, utilities, etc) is good with no late payments..just the mortgage payments show on the credit report as late...
    0 Votes

    • 35x35
      Jun, 2011
      Bill
      Great question. Consumers can get a no-cost copy of their credit report, but must pay to see their credit score. The best way to answer your question is to get your credit score to see where you stand.
      0 Votes

  • 35x35
    Jun, 2011
    GB Short Sales
    Except in very limited circumstances, a short sale and foreclosure will have the exact same affect on your credit score. FICO treats them both as "serious delinquencies" and therefore they both affect your credit score as such. Not all lenders, however, report short sales in a uniform manner and therefore it is possible that a short sale will be less damaging to your credit score than a foreclosure simply by virtue of how it shows up on your credit report. There is a lot of misinformation on this subject and one should always speak with an attorney or tax professional before considering a short sale. You can also mitigate the immediate damage to your credit score by remaining current on your payments for as long as possible before selling the property. You can read more about how to do so here: All in all, good article. Regards, Greater Boston Short Sales, LLC
    0 Votes

    • 35x35
      Sep, 2011
      Keith
      The problem with that being, if someone is forced to consider a short sale, it is highly unlikely that they have $250/hr to spend on a lawyer or CPA.
      0 Votes

  • 35x35
    May, 2011
    CJ
    Bill, We purchased our condo in 2006 and were blindly led to accept a neg am loan (option arm) by a very well seasoned broker. My husband and I were newlyweds with a combined income of roughly 105K. We qualified with no money down and ended up with a first of 428K and a second of 107K. Yes doing the math we bought our CONDO for 535K w/ a combined income at the time of 105K. Our current property value has dropped significantly to 425K. In all reality, we should have never qualified for this home. We didnt realized until after we were moving in and final loan docs were delivered to our doorstep that our first would grow annually and cap out at a 60K increase prior to reamort. Our second had an interest rate of 13%. Its embarassing to be two highly educated people and write about our unfortunate situation. I have to take most of the blame because after all was said and done, we signed on the dotted line. Two weeks after we moved in we found out we were unexpectedly and delightfully pregnant. I guess you can say as sucky as our financial perdicament, everything happens for a reason. Fast forward 9 months, our child was born with a craniofacial defect that will require numerous surgeries until age 18. While insurance will cover most of the medical attention we need, some will not be covered. We have spent our time since the birth in 2007 trying to secure a loan mod. I was successful in modifying the 2nd down to a 8% interest rate, $400 savings, on my own at the end of 2007. I might add the 1st and 2nd are both serviced by EMC. The 1st has been denied for a loan mod several times over the years ranging from high cash reserves, "not a first lien mortgage, not within 6 months of adjusting, 2 year prepay penalty etc. I am completely convinced their fax machine is permanently attached to an incinerator. 1st now is up to 480K. I am trying to be proactive to protect my family and keep the banks best interest in mind. I hired an attorney that tried to no avail to assist us. We were reimbursed 100% of his fees. At one point, the lawyer was calling and given erroneous info everytime when the loan mod had actually been closed for over 4 months. We resubmitted and EMC opened an escrow acct w/out our knowledge, payed our property taxes and sent our new mortgage stmt which included an $832 addition monthly to cover escrow acct. Mind you my property taxes are only 6K. We got that settled and closed out after numerous phone calls bc the escrow acct was opened prior to our mod being accepted (which was later denied) yet bc they had made our prop tax payment, we had to reimburse them to get escrow acct closed in time so our mortgage payment for the month wouldnt be considered late. I dont know what to do bc my husband is now with law enforcement. Our income has changed from 105K to 135K. All overtime pay has ceased bc the city is broke, although we spend ungodly amounts monthly in gas for him to truck all the way to the valley for work and court numerous times a week. We have credit card debt from supporting our daughters medical needs and the medical needs of my mother in law to the tune of approx 29K. I fear that a short sale will affect my husbands security clearance in the future and am not confident EMC will assist in securing a short refi w neg equity. I am fearful of tax ramifications from either one and want to not incur a 1099 if at all possible bc we need our savings as a security blanket to care for our child and any other unforseen circumstances like possible work furloughs etc. We currently have good credit between us both ranging from 775-795. We have grown out of the property and need to seek a larger home. Any advice would be greatly appreciated. I might add we have CONTINUED TO REMAIN CURRENT THE ENTIRE TIME. Situation is this-we can afford the option 1 payment plus the 2nd but are being proative to secure a fixed payment prior to the inevitable reamort takes place and we can no longer afford the payment without exhausting our childs medical savings. Any advice would be greatly appreciated, as I am at my wits end and have run out of tears.
    0 Votes

    • 35x35
      May, 2011
      Bill
      My first and last thoughts will be for you to consult with a lawyer about your situation. Here is one way to resolve your situation:
      1. Consult with a lawyer about setting up a special needs trust for your child. You mentioned a saving account for your child's medical needs. Put that money into a trust so that it is insulated from any claims by you and your spouse's potential judgment-creditors.
      2. Talk to the mortgage servicer (you mentioned EMC) about a short sale or deed in lieu of foreclosure. The servicer will likely require you to make a financial disclosure. Ask the lawyer who set up your child's trust if this needs to be included in any of your financial disclosures. My guess is no.
      3. If you cannot reach an agreement for a short sale or deed in lieu of foreclosure, then your only choice is a strategic foreclosure.

      I assume you and your spouse are both on the mortgage. If so, both of your credit scores will suffer as a result of the short sale or foreclosure. However, if only one of you is on the mortgage, only that person's credit score will suffer.

      0 Votes

    • 35x35
      May, 2011
      Aaron
      Hi Bill, Back in 2006, I sold my interest in an investment property to my former investment partner. He stopped paying his mortgage back in 2008 (years after I sold him my interest) and the property is now in foreclosure. My name is no longer on the title/deed because I quitclaimed the deed right after I received my money. However, my name and signature are on his mortgage because my name was still on his title when he re-financed in order to free up the money to pay me. Please note however, my name is NOT on the note. So here is my question: given that my name is still on the mortgage, but NOT on the title or note, do I have any exposure to the forclosure proceedings? Can a foreclosure or short sale adversely affect my credit score? Thanks you very much! Sincerely Frustrated, Aaron
      0 Votes

    • 35x35
      May, 2011
      Bill
      Based only on what you wrote here, my answer is no, you do not have liability for the debt. Here is my quick and dirty analysis: What laymen call a "mortgage" consists of two documents: the promissory note and the mortgage. The note places personal liability on the borrower to repay the loan. The mortgage is an interest in the property, which gives the lender the right to foreclose and seize the land if the borrower does not repay the loan. The mortgage is recorded with the county clerk because it is an interest in the land.

      Here, Investor A and B bought a property and both of their names were on the mortgage and the note. Investor B decided to do something else, so Investor A refinanced the promissory note, and paid Investor B, who quit-claim deeded his interest in the property to A. Investor A should have recorded the quit claim deed, but that is not an issue here. Meanwhile, down at the county clerk's office, the mortgage is still attached to the property in A and B's names. Does that give the lender the right to sue B if A defaults on the loan payments? No, because B is not on the note. B's name on the mortgage is irrelevant to the lender.
      1 Votes

    • 35x35
      May, 2011
      Aaron
      Thank you for the prompt reply, Bill. You've made it clear that you believe I am not liable for my fomrer partner's default. However, is there any chance that my credit score may still be affected, because there is a foreclosure proceeding in court (likely to prevail) with my name listed as a party?
      0 Votes

    • 35x35
      May, 2011
      Bill
      Court documents are public records. Therefore, there is a chance this foreclosure will appear in the "Public Records" section of your credit report.

      A foreclosure will lower your credit score, although it is hard to separate out the impact of all the delinquent mortgage payments that preceded the foreclosure from the effects the foreclosure has on your credit score.
      0 Votes

  • 35x35
    Apr, 2011
    Wendy
    I am petitioning to have my lender allow a short sale, and am wondering about the impact of the fact that I pay for Private Mortgage Insurance (PMI). Can you elaborate on what this means for me and for the lender? Thank you.
    0 Votes

    • 35x35
      Apr, 2011
      Bill
      See the Bills.com resource Private Mortgage Insurance to learn more about PMI and what it covers in a foreclosure.
      0 Votes

  • 35x35
    Mar, 2011
    Wer
    I'm a employee with a Top 5 mortgage company. Does anyone know on what WOULD happen (Not might or guesses) if my wife and i did a Forclosure, Short Sale ? We are down like 35% and it's getting rough. Could an employer FIRE us or NOT hire us with that on our record in the two scenarios? 1) The loan is/was with the bank we work with today or 2)or We are trying to get a job with a bank that we did our loan forclosure or shortsale with/ Thanks for your time.
    0 Votes

    • 35x35
      Mar, 2011
      Bill
      You are asking Bills.com and your fellow readers to predict the behavior of an employer with 100% certainty. If your question is, "Is it legal for an employer to discriminate against an applicant who defaulted recently on a loan the applicant had from that employer?" The answer is, "Yes." Applicants who default on mortgage loans are not in a protected class under federal law, or any state laws I am aware of.

      Will a bank discriminate against such an applicant? I cannot say. Turn the circumstances around and let us say you are a manager interviewing prospective employees. Given two equal applicants, would you want to explain to your boss why you chose to hire an applicant who just cost your company a lot of money? Or would you pick the one who had not?
      0 Votes

  • 35x35
    Feb, 2011
    CJ
    Bill, I am active duty military and have recently received orders to another state. I'm looking at selling my condo, but owe more than it is currently worth. Of note, the current loan that I have is Interest only for the first 6 years, and then principle and interest after that. At this time I have tenants living in it (they would like to buy it). Thoughts or advice? Thank you.
    0 Votes

    • 35x35
      Feb, 2011
      Bill
      Does the monthly rental payment you receive cover your mortgage payment, property taxes, and upkeep on the property? If you feel that you can maintain payments on the condo and that property values are likely to rebound, then maybe you want to continue as is, working out a sale to your tenants, once a price can be agreed on between you that will pay off your loan on the condo. Is your current loan a VA loan? VA loans often are assumable loans, meaning that another party may be able to take over your loan, assuming its terms. I have two reading assignments for you. First, check to see if you have an assumable mortgage that you can offer to the tenants. An assumable loan can get them into a mortgage and the property off of your back.

      Alternatively, you may want to pursue a short sale, especially if you can get the lender to agree to not come after you for any balance that remains. Read Deed In Lieu Of Foreclosure vs. Short Sale to understand your options for selling the property.

      A few facts that you did not mention that could affect what route is best for you is how far underwater you are and when the interest only period ends.
      0 Votes

    • 35x35
      Feb, 2011
      Carrie
      I am responding to the original question of how much a short sale will effect your credit score. I just completed the short sale process and I too was looking for information online before the whole process started. My score ranged from 796-806 on the 3 bureaus before I became late on my first payment. After I missed my first payment my score dropped by 50 points (ouch!). By the time the short sale came around my mortgages were showing 120+ past due. Once the sale was completed my credit report all show that the account was 120+ days past due and that the accounts had been settled (they all have their own way of saying it - "legally paid in full for less than amount owing", "account settled for less than amount owing"). I was not required to come up with any cash and both mortgages were with BOA. The aftermath is this: my credit score now ranges from 697-705. This is not nearly as bad as what I had read it could be. I guess I'm lucky? Who knows. I just thought I'd share my story because when I was looking for answers I never found someone who had actually gone through the entire process! Good luck and I hope this helps!
      3 Votes

  • 35x35
    Jan, 2011
    tom
    Bill, My wife foreclosed on her second property early in 2010 so it does not qualify as primary residence. She is/was technically insolvent. My credit is fine and I am not insolvent and do not want to get caught up in her losses. Do we need to file married filing separately for her to not have to pay any additional tax on the forgiven debt? Can I still claim her as a dependent? I probably need a good tax guy, but wanted your first take on it. Great column. Thanks!
    0 Votes

    • 35x35
      Jan, 2011
      Bill
      If you file "married, filing separately", you can't claim your wife as a dependent on your return. You need to speak with a tax professional about the IRS Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. The Form 982 is what a taxpayer uses to avoid having to declare as income the dollar amount listed on a 1099-C for a forgiven debt. I believe that your wife can use the Form 982, but check with a tax professional, as things can get complicated, especially if the two of you own a home together.
      0 Votes

  • 35x35
    Jan, 2011
    nick
    Hello. I sold my home a month ago and the lender has reported it on my credit as debt paid settlement. The balance owed reads says $o and the account status says closed. Am I in the clear as far as my credit going down or having to pay back the $50,000 difference? Any comments would be greatly appreciated. thank you
    0 Votes

    • 35x35
      Jan, 2011
      Bill
      Were you delinquent on any of your mortgage payments prior to the short sale of your home? If so, the late mortgage payments will have harmed your credit score far more than the notation that the debt was settled. Your score may decline due to the settlement notation, but I don't think it will drop severely. Why don't you check your credit score now and then again in a few months, so you can see the effects? Separately, you should look into the tax implications of debt that is forgiven. A person whose debt is forgiven can receive a 1099-C from the creditor for the amount forgiven and be required to declare the amount forgiven as income. This can result in taxes owed for the amount forgiven. When the debt forgiven is large, the income declared from the forgiven debt can raise a person's tax bracket. In this case, not only are the taxes due on the forgiven debt, but any taxes withheld from normal pay may prove to be insufficient to cover the tax obligations that fall on the person in a higher tax bracket. You may not have to declare the 1099-C monies as income, if your forgiven debt falls under the protections of the Mortgage Forgiveness Debt Relief Act. If you are not covered by the Mortgage Forgiveness Debt Relief Act, you should speak with a tax professional about the IRS From 982, which allows people who qualify to not declare forgiven debt as income. It is crucial to deal with this issue in a timely manner, as the Form 982 must be submitted to the IRS by October 15th for the return that was due in April of that year.
      0 Votes

  • 35x35
    Oct, 2010
    Janice
    If you have never been late on your mortgage payment and selling your home results in a short sale will this affect your credit rating? Will it show on your credit report that it was a short sale?
    0 Votes

    • 35x35
      Oct, 2010
      Bill
      In the circumstances you described, you should see no change or a slight decrease in your credit score. This is not the case in a situation where the homeowner stops paying or is late on their mortgage payments leading up to the sale.
      0 Votes

  • 35x35
    Oct, 2010
    Bill
    Generally, prior to approving you for a loan, lenders want to see how you were paying your home costs, be they rental or mortgage payments. As there is a gap between the time that the first lender transfered your loan to the present, it is possible that the lenders will ask what happened during that period. If you do not have a satisfactory explanation, your loan could be denied. Depending on the benefits of a new home purchase, it seems that all you have to lose by trying to get a loan is the cost of an appraisal. If the potential loss of the appraisal fee is worth suffering for the potential gain of the new home purchase, it makes sense to apply for a loan. I am not certain, but I do not believe that you are required to disclose the short sale to any prospective lender. However, if you are asked directly, you should disclose the facts about the short sale.
    0 Votes

  • 35x35
    Oct, 2010
    Michael
    Hi Bill, I was able to complete a short sale on my primary/only residence(1 mortgage only owed on property) and closed on it in September 2010..My mortgage was with Cenlar(transferred to them from TB&W) and they never reported to the credit bureau that I owned the house therefore it does not show up on my credit that I owned the home after it was transferred to them from TB&W.It says closed account.My credit score is a 725.Can I get a mortgage to buy a new home and do I have to tell the mortgage lender that I did a short sale on my home even if it is not showing up? I have been pre-qualified buy 3 different mortgage brokers and they all have told me to pick out a house but I just keep thinking that somewhere something is going to catch up with it. I am really confused.
    0 Votes

  • 35x35
    Feb, 2010
    Bill
    My guess -- note my word choice -- is that there is a "seasoning" issue related to your recent short sale. Customarily, six months is all you need. Go back to the lenders who told you about the three-year rule, ask them why they picked three years, return here, and let me know if my guess was accurate.
    0 Votes

  • 35x35
    Feb, 2010
    Julie
    We had a short sale on our house 16 months ago. We had already purchased another house with relocation help from my husband's company, but at a high (9%) interest rate. We would now like to refinance the current mortgage, and have been told by a couple companies that we have to wait 3 years. Is this the industry standard?
    0 Votes

  • 35x35
    Feb, 2010
    Bill
    You will receive a 1099-C. However, the Mortgage Forgiveness Debt Relief Act of 2007 (HR 3648) provides a break for homeowners in your situation. See the Bills.com resource Information on 1099 Income From Short Sale to learn more.
    0 Votes

  • 35x35
    Feb, 2010
    Mary
    Is it true that with a short sale, you will receive a 1099 and will have to pay taxes on the difference?
    0 Votes

  • 35x35
    Feb, 2010
    Bill
    There are no industry standards for short sale qualifications. Contact your loan servicer (probably a bank) and learn its qualification standards.
    0 Votes

  • 35x35
    Feb, 2010
    Brian
    I own a condo in Florida that is at least $100,000 upside down on the first mortgage and also have an equity line of $30,000. I am recently married but was not when I purchased in 2005 so my wife is not on any of my debts. I'm going to be laid off soon and consider this the time to short sale our condo but was curious what effect our joint checking and savings account will have on the process. We have about 15k in savings together and my wife is about to get a better job but doesn't want to pay into my negative house debt. I guess I'm curious how much cash one can have and still qualify for a short sale with a 1st and 2nd and can we seperate accounts to prove my Financial hardship while my wife still makes a decent income?
    0 Votes

  • 35x35
    Feb, 2010
    Bill
    Contact the VA. See the VA document VA Home Loans to understand your rights and options.
    0 Votes

  • 35x35
    Feb, 2010
    Melissa
    I am on a forbearance plan with Wells Fargo. I currently have my home for sale ( short sale)I am still waiting for word on the bank since they seem to be very backed up. My payments went from 1320 to 1711.00 because of the forberance payment plan, I can not afford this since my husband is deployed and I am not able to work. My realtor said I shouldn't make payments because the short sale might be denied. What should I do? Should I contact the VA office since it's a VA loan?
    0 Votes

  • 35x35
    Dec, 2009
    Bill
    There seems to be a great deal of misinformation in the air regarding marriage, credit scores and credit reports. Marriage does not create a merger of credit reports or credit scores. Each person, married or not, has their own credit report and credit score. The actions of one married person does not affect his or her spouse unless they have joint debt accounts, or one spouse is the authorized user of the other spouse's accounts. Please see Credit and Marriage to learn more. Here, whatever you do with the condo (short sale, deed in lieu of foreclosure, foreclosure, or bankruptcy) will have no effect on your husband's credit report or score because he is not on the condo's mortgage.
    0 Votes

  • 35x35
    Dec, 2009
    Jessica
    Hi Bill, Have a condo I purchased in May 2005 for 385,000. On zillow its is valued at 320,000. I have since gotten married and bought a house w/ my husband and had a baby. I am renting the condo out but am negative 1,000/month. I am thinking of doing a short sale.. will it affect my husband's credit? I bought the condo on my own, the deed is under my single name. Thanks so much!! Jessica
    0 Votes

  • 35x35
    Dec, 2009
    Bill
    You are not the first person to report to Bills.com that a short sale appeared as a "paid in full" on their credit report, so what you wrote does not surprise me. That said, there are some banks that are playing hardball with homeowners and are asking them to sign documents that would leave the homeowner selling their home in a short sale to be responsible for the deficiency balance. My suggestion is to make sure you review your short sale contract carefully to make sure your bank is not trying to slip in a surprise.
    0 Votes

  • 35x35
    Dec, 2009
    Karen
    I have a question regarding short sales. We have never been late but have a really bad loan that we can't refinance. We are upside down in our mortgage and need a larger house. We talked to our bank and gave them requested documents, they told us we are authorized to do a short sale and to list our home. They did the bpo and I told them the price our realator would list the property. They told us to start off 10,000 lower based on the bpo. We have an offer and they said send it in and that it sounded reasonable. I have also been dealing with the bank on my realtors side about buying another house at the same time. He said we can do it and preapproved us for another home contingent on the sale of ours. He said it had to be considered "paid in full" by my bank. I talked to them and they said if approved it would be "paid in full" and I would not have to sign any promisary note. Is this possible it seems to easy?
    0 Votes

  • 35x35
    Nov, 2009
    Bill
    1) Credit reports are notoriously inaccurate. The General Accounting Office reports that of the 52 million free credit reports requested of the credit reporting agencies (commonly called "credit bureaus") through AnnualCreditReport.com, 25% of those reports resulted in a dispute. Of those disputes, only 25% of the credit reports were verified as accurate. In other words, 75% of the complaints were for sound reasons. The fact that you have found what is clearly an error on your credit report does not surprise me.

    2) Regarding the recourse question, see Is My HELOC a Recourse or Non-Recourse Loan in California? Your second may or may not be a HELOC, but the analysis is essentially the same.

    3) Regarding the The Mortgage Forgiveness Debt Relief Act of 2007 question, see H.R.3648 Public Law 110-142. Your question asks for a legal opinion regarding Public Law 110-142, which I will not give you. I urge you to consult with an attorney experienced in federal tax law who will be able to review all of your facts and advise you of your options.
    0 Votes

  • 35x35
    Nov, 2009
    Nicole
    Hi, I purchased a condo in California (primary residence) in 2006. I had to move to another state because of my job in late 2007. I had renters (at a loss), but the real estate tanked shortly after I moved. I tried to keep it, but I just couldn’t afford to pay a mortgage and rent here—and I was upside down in the mortgages. My primary lender wouldn’t refinance because I didn’t live in the property, and I wasn’t behind on payments. I had to stop paying to get them to agree on a short sale. The second lender declined to accept the minimum net proceeds, but released the lien so the sale could go through. The property closed in September 2009. I just looked at my credit reports. Both lenders reports ‘120+ days late’ since earlier this year, but the second lender has comments that say “customer disputes this account.” The primary lender reports “settled for less.” Three questions: 1) Is “customer disputes” standard language or could this be a reporting error? ; 2) can the second lender legally pursue the remaining balance if the loan was a nonrecourse one? and 3) if the property was purchased as a primary residence, but not sold as one, would I still be exempt from being taxed on this amount under The Mortgage Forgiveness Debt Relief Act of 2007?
    0 Votes

  • 35x35
    Sep, 2009
    Bill
    Contact the lender to learn if retirement accounts need to be included in your asset statement. The authors of the 401(k) rules did not want retirement accounts to be used as piggy banks for daily household expenses. On the other hand, a person can make a hardship withdrawal under some circumstances. According to IRS document 401(k) Resource Guide - Plan Participants - General Distribution Rules, a 401(k) plan may allow you to receive a hardship distribution because of an immediate and heavy financial need. According to the IRS document cited, a immediate and heavy financial need includes, "Payments necessary to prevent the eviction of the employee from the employee's principal residence or foreclosure on the mortgage on that residence." If you will be evicted from your residence if you do not receive a distribution from your 401(k), then you may be able to argue to your 401(k) administrator that your distribution request is for an immediate and heavy financial need.
    1 Votes

  • 35x35
    Sep, 2009
    Tamarah
    Hi Bill, great information here! I am wondering if when you submit documentation to your lender if that will include 401k too? We bought in CA 2004 and our home is now lost at least half its value. My husband was laid off last year and his new job has reduced our income so much that we have CC debt now and a debt to income ratio or 45-55%. What does the bank really look at to determine hardship. Because we are living beyond our means, mostly because we can't afford our mortgage and property taxes. thanks.
    0 Votes

  • 35x35
    Sep, 2009
    ks
    thanks Bill, i really appreciate it. I just spoke to the lender, and they said it would be reported "Paid in full for less than the full amount." the lender could not answer specific questions about how this would affect credit score or credit report, but they suggested i contact the credit bureaus for that information.
    0 Votes

  • 35x35
    Sep, 2009
    Bill
    If the lender really reports the mortgage as "paid in full" then you have an excellent outcome. The impact on your credit score will be minimal at worst, and actually positive if the lender follows through on its promise. As I mentioned in an earlier reply, different creditors report short sale outcomes differently, and for many people the impact on their credit score is mild at worst and much, much better than a foreclosure.
    0 Votes

  • 35x35
    Sep, 2009
    ks
    hi, i am approved to do a short sale and will have no payments in arrears at the time of settlement. My lender has agreed to show that the mortgage is "paid in full." do you know how this may affect my credit score since i will not be delinquint on any payments? will the short sale be on my credit report or negatively affect me from getting a great rate on a home purchase in 3-5 years (i have a 750 credit score now)? will my credit remain intact? where can i find this information out? thanks
    0 Votes

  • 35x35
    Jun, 2009
    Bill
    Thanks for your input. Lenders tend to report a short sale in different ways, and as you have experienced, if they report as "Paid as Agreed" then the impact to your credit will be less.
    0 Votes

  • 35x35
    Jun, 2009
    CMG
    Here's my short sale situation. Hopefully it helps some people. I sold short last year and I recently checked my bureau and the score was ~748. I thought this was high considering. We called the bank to let them know that the acct was still open and they needed to "take care of it". The next day I get an Equifax alert stating my score jumped to 813. I looked into it and the bank had reported the mortgage as "paid as agreed". This surprised me to say the least. I don't know if this is the reason, but our situation was that we were living beyond our means and still paying current. We were forced to use credit cards more than we wanted so we could pay our mortgage and knew we needed to get out of our house asap or we'd be in serious trouble. Our bank told us in order to do a short sale we had to be late so we missed one payment. After we sold the house the remaining balance was ~ $22k. Why the bank didn't say "settled" is beyond me. I guess $22k is chump change compared to other people...
    0 Votes

  • 35x35
    Jun, 2009
    Bill
    First off, you need to check with your lenders to see if they open to the short sale option as a short sale can only happen with the approval of your lenders. While a short sale is not as bad as a foreclosure, it will still hurt your credit, but not as bad. While there is no way to estimate the time it will take to recover your credit, I have heard that you need to give it at least 2 years before you can start to look for home loans again.
    0 Votes

  • 35x35
    Jun, 2009
    Greg
    I am currently going through a divorce. Neither of us can afford the home by ourselves, but the home will not sell for what we owe. My wife is concerned that a short sale with negatively affect our credit for many years to come. What kind of time period would we be looking at before our credit scores rebound enough to be credit worthy again? Right now each of us has credit scores of 776 and 781, and neither of us has been delinquent on anything.
    0 Votes

  • 35x35
    May, 2009
    Adrienne
    Sorry if this is a repeat but I don't think my question went through the first time. I'm still not understanding if the bank agrees to report to the credit bureaus a short sale as "paid as agreed", would one be able to purchase another, more affordable home immediately? Thank you.
    0 Votes

  • 35x35
    May, 2009
    Bill
    They might report it as "paid as agreed" or "settled for a lower balance", it really depends on your lender. You will have to wait at least 2 years before buying another home. You can read more here: http://homebuying.about.com/od/4closureshortsales/qt/060907SScredit.htm
    0 Votes

  • 35x35
    Mar, 2009
    Bill
    The actual reporting of Short Sales depends on factors unknown right now. Your first mortgage type; purchase or refinance, is one of the factors as is whether or not the lender has agreed to allow you to sell the property and has also released you from the difference between the owed amount on the property and the short sale amount (that difference is generally known as a deficiency balance). Other factors exist, such as a second mortgage on the title and other potential/existing liens. Generally speaking, if they are not looking for a deficiency balance payment plan or pay-off, then they may be waiving your responsibility to that difference. You should talk with you Real Estate Agent and your lender surrounding the exact terms of your short sale and your responsibility; if any, post-sale. As far as Credit Agency reporting, that is solely up to the lender/creditor in question. They are mandated to report factual information. Again, this is where you should talk with your lender about their policy on reporting short sale transactions and whether or not language is contained in your short sales agreement surrounding their reporting to agencies. Many lenders will report it similar to a voluntary repossession, which would hurt credit.
    0 Votes

  • 35x35
    Mar, 2009
    Karrie
    Like many of the previous bloggers, I have a question about how a short sale will be reported to the credit agencies. We have never been late or missed a mortgage payment. We did, however, qualify for a short sale when I was laid off from my teaching job this past June. It looks like we have an acceptable offer on our home. I was wondering if the bank would be likely to report the sale "paid as agreed" if we've been current on our payments. It was my understanding this is something I could negotiate with our lender. Also, if it's reported "paid as agreed" I was told we'd be able to purchase a more affordable home right away. What do you think?
    0 Votes

  • 35x35
    Jan, 2009
    Bill
    As long you have your paperwork showing the dispute with the one credit bureau that is reporting it as a "foreclosure", you should be fine. The credit bureaus can be a pain to work with, you will have to be really persistent. Not all mortgage lenders will look at all three bureau reports, even if one does so, you should be able to explain what happened.
    0 Votes

  • 35x35
    Jan, 2009
    Marie
    We did a short sale on our house in October after having it on the market for 3 years. We were never late on our payment. Our lender agreed to do the short sale because we were so upsidedown and we were on an arm that was killing us. It really didn't affect our score (we are about a 650 and were a 670). However, on one of the Big 3 bureaus, it says "foreclosure". I have disputed it since we were never late. The rest of the credit agencies just have settled. How will this affect us in buying a house?
    0 Votes

  • 35x35
    Jan, 2009
    Bill
    You need to speak to both of your lenders to discuss the modalities of the sale. Your first mortgage lender will have first claim on the sale, so I am guessing that the shortfall will only be for the second.
    0 Votes

  • 35x35
    Jan, 2009
    DJ
    We are in the process of selling and appears that the offer will be about $10,000 short of what we would need to break even (1st & 2nd mtg, closing costs). Can I try and do a short sale with both the 1st & 2nd mortgage holders or just consentrat on one. I owe about $53,000 on the 1st and $39,000 on the 2nd. So it won't be a total loss for either.
    0 Votes

  • 35x35
    Jan, 2009
    Bill
    It is quite possible to do a short sale and still have decent credit afterwards. When you do a short sale, you can sometimes negotiate with the bank about two major issues: how they report your credit, and how whether they can go after you later for their financial losses. The reason you can sometimes negotiate this is that you are not letting your house go through the foreclosure process and leaving it to the bank to deal with. When you do a short sale you are helping the bank. You are getting rid of a problem for them. One of the myths about short sales is that you have to be late on your mortgage. It is quite possible to do a short sale without ever being late on a single payment. Some lenders will be difficult to negotiate with unless you are late but if you are sharp in negotiating you can often overcome this issue and never be late and do the short sale. The short sale can be reported as a foreclosure but more often it is reported as "paid - settled". This is a definite ding on your credit, but not a severe one compared to multiple delinquencies, charge-offs, foreclosure or bankruptcy. It is a very good idea to do a short sale as compared to running out of savings and ruining your life just to maintain 50 points on a credit score, at least that is how I see it. Also, you are right about the tax liability for the shortfall arising out of short sale. Again, this depends how how your lender decides to report the shortfall. Some are known to follow up for deficiency judgments (if you have a second mortgage, they might opt for this route), but usually they will just declare the shortfall as income via a form 1099. You should discuss all of these matters with your lender before doing anything with respect to the short sale of your home.
    1 Votes

  • 35x35
    Jan, 2009
    Sally
    Bill, from all the above posts I am reading it seems as though a short sale will not affect my credit score. I own a home with my ex. The Mortgage is $525 but it is only worth $410. I was able to find someone to rent it but the rent only covers half of the mortgage. We both want out of the house. We both also have jobs that rely on our credit scores. My Property Manager suggested a short sale but in the long run it CAN NOT affect our credit scores. We have been on time with our mortgage payments since we purchased the home in 2006. Would a short sale be a good idea? I read somewhere else that it all depends on what your mortgage company tells the credit company. Also, what will we be looking at as far as Taxes on the short sale? Is it true that we will be taxes for the short fall of money we can't pay the bank?
    0 Votes

  • 35x35
    Dec, 2008
    Bill
    The only program I have heard about is the "HOPE FOR HOMEOWNERS" program. You can read more here: http://www.hud.gov/news/release.cfm?content=pr08-150.cfm. I have not come across any instances of customers who have actually received any assistance as such. A short sale is still a much better than having your home foreclosed upon. If you plan to stay in the home then it makes sense to keep paying on your mortgage (if you can afford the payments) until a concrete mortgage bailout plan emerges.
    0 Votes

  • 35x35
    Dec, 2008
    Dave
    Bill: We currently have 2 mortgages on a home we purchased in Dec 2005 (bought at the high end of the market). Our neighbors all around us are selling in the mid 600's (we owe 680k). We have never been late with a mortgage pmt. have decent credit. We are reading mixed reviews for a a short-sell. In order for us to get out of our current home it seems as though are only option is a short-sell. Our relator has suggested this as we do not have 30 to 50 k to put toward the closing of a house (to get out clean). What will a short-sell do to our credit? What does it actually state on a credit report and with all the new government housing assistance is there another option for us so we do not tank the great housing credit we have already established? Any suggestions to get out of this home would be great appreciated.
    0 Votes

  • 35x35
    Dec, 2008
    Bill
    Cliff, the question of a deficiency balance arises only if there is a second mortgage associated with the property. It is the second mortgage lender who may try to collect on the loan as he is not getting anything out of the short sale. As far as your second question is concerned, as a short sale is a solution that is reached with the agreement of your lender, if they insist that you be current on your loan till the sale takes place, then it would be best if you continued on your payments.

    Editor's note: This reply contained an inaccuracy that is corrected here: A lender may insist the borrower accept liability for the deficiency balance, or it may not. Each lender has different policies, and each situation is different. Sometimes, borrowers accept liability for a deficiency balance unwittingly, and only learn of this liability after the short sale is complete. Others will accept the liability and expect to pay it, and some expect to file for bankruptcy or to negotiate the balance to a lower amount.
    0 Votes

  • 35x35
    Dec, 2008
    Clifton
    To Melissa, don't worry about 1300 miles. I'm doing a short sale from 10,000 miles! For Bill, I don't understand one part of the article. It says the lender must approve a short sale but then says the lender may pursue you for the deficiency. Why would they agree to take less in a short sale then sue you afterwards? Another question if you are current with your mortgage and the lender accepts to begin a short sale, does it make any sense to keep paying the mortgage?
    0 Votes

  • 35x35
    Dec, 2008
    Bill
    A short sale is something that will have to be discussed with your current mortgage lender as you cannot conduct one without the permission of the same. People opt for a short sale as it does not leave a negative remark, like a foreclosure would, on your credit profile. I suggest you speak to your current lender about your alternatives.
    0 Votes

  • 35x35
    Dec, 2008
    Melissa
    My family has an unexpected, immediate, job related move of about 1300 miles. We are upside down on our mortgage by at least $30,000.00. How difficult is a short sale 1300 miles away from the property? Does the Realtor get their commission from the sale or would I be personally liable? Do you have a good 'first step' suggestion? Other than ruining my credit score for the time being, why not foreclosure?
    0 Votes

    • 35x35
      Dec, 2010
      josephine
      get a realtor that is trustworthy and hand over your keys,then get a reliable attorney and sign power of attorney and move on,i did just that more than three monts ago and closed last week on my house.make sure your neighbourhood is safe,that there will be no break in,if there will be break in,then ask for help from your neighbours,my niehbourhood was good.It does not hurt to pray to Jesus for help He helped me.GODbless you
      1 Votes

  • 35x35
    Dec, 2008
    Bill
    You should seek counsel from an attorney, but a few considerations are: 1. is you use an agent, it will cost more but might increaset the likelihood of getting a sale done (and may be less personal stress), 2. could your husband qualify for a refi without using your income? If so, then you could do a short sale and hurt your own credit but protect his and let him refi the house just in his name. This one involves many decisions and is a little more complicated than a quick blog answer would justify, so be sure to ask friends and maybe a loan officer or two to get good advice. Good luck.
    0 Votes

  • 35x35
    Dec, 2008
    Stephanie
    I'm trying to get rid of the house I bought before I got married. I tried to sell it for over a year-no luck. Tried to rent it for 6 months-no takers. My lender approved me for a short sale. I'm a little worried about having a "settlement" on my credit report because my husband wants to be able to refinance the house we live in now...Should I be? Also, should I use a real estate agent or do "for sale by owner"?
    0 Votes

  • 35x35
    Dec, 2008
    Bill
    Yes, a short sale could work but you will need your lenders to agree (in writing) to this strategy. If you really were the victim of fraud you should consult and attorney and see if you can get the mortgage bank to take back to properties for no cost. That could be a long and expensive legal process, however. Good luck. Either way, you should call your lenders quickly.
    0 Votes

  • 35x35
    Nov, 2008
    Dale
    We bought 2 houses as rentals 5 years ago. We have found out since then that we were victims of mortgage fraud. We paid between 25,000 and 30,000 for each house and call sell for 10,000. We thought it was the banks responsibility to make sure that an accurate appraisal was obtained. Can a short sell work for us? We have enough money in our retirement account to cover the loss so does that preclude us from this.
    0 Votes

  • 35x35
    Oct, 2008
    Bill
    That really depends on the time your lender takes to finish the process.
    0 Votes

  • 35x35
    Oct, 2008
    Lauren
    Assuming I have a buyer and the lender agrees to the short sale how long is the typical wail to close?
    0 Votes

  • 35x35
    Oct, 2008
    Bill
    If were never late on the payments, then it might not show up. You have a great score, as stated in the article, short sale do not have much of an impact on your credit score. I see no reason why you should not qualify for another mortgage.
    0 Votes

  • 35x35
    Oct, 2008
    Felicia
    Hello, I just recently did a short sale on my home I was never late on any payments and just wanted to downsize is it ever so possible for me to get another home loan within a year or so I pulled my credit score yesterday It has not shown up yet my median score is 788, closed on property June 2008
    0 Votes

  • 35x35
    Sep, 2008
    Bill
    Jeff, a short sale is something that you need to discuss with your lender. It is dependent on the lender as to whether they will let you do a short sale or will initiate foreclosure. In most cases of default for 3 months, the lender will initiate foreclosure, but given the depressed markets some of them will hold off for a bit if the value of the home is not enough to cover the balance on the loan. You can read more about short sale at http://en.wikipedia.org/wiki/Short_sale_(real_estate).
    0 Votes

  • 35x35
    Sep, 2008
    jeff
    Bill im in the process of mandatory job relocation. Dont have no equity on the property for over 2 years now and too much debt. Can i do short sale while im overseas or out of state? What will happen to me if im behind 3 months on mortgage payment and i want to do a short sale ?
    0 Votes

  • 35x35
    Jun, 2008
    Bill
    If your lender has agreed to a short sale, then lowering of the price is not going to hurt your credit any further.
    0 Votes

  • 35x35
    Jun, 2008
    Cindy
    Hi Bill, I'm in the process of selling my home through a short sale. The buyer keeps trying to lower and lower the price. Will my credit be affected even more if I lower the price by 5,000 more, or doesn't it matter?
    0 Votes

  • 35x35
    May, 2008
    Shannon
    Bill I am selling my house and will owe more than we get from it. Is it automatically a "short sale" if the amount is lower or only when you go through the short sale process? I don't want to go through the formal process if they would just allow me to get a loan or something and avoid having my credit ruined.
    0 Votes

  • 35x35
    May, 2008
    Bill
    No, because you are upside down on your mortgage does not mean that you are aumatically qualified for a short sale. A short sale has to be discussed with your current lender and only if the lender approves, will you be able to go through the short sale process. Not all lenders will accept short sales, especially if it would make more financial sense to foreclose; moreover, not all sellers nor all properties qualify for short sales. Check out this article for more information about qualifying for a short sale: http://homebuying.about.com/od/4closureshortsales/qt/112707_QualSS.htm
    0 Votes