Lenders go to great lengths to alert each other, by way of reporting to credit bureaus, that the defaulting homeowner is someone who, when the chips were down, didn’t honor a contract. It matters not to a lender the manner by which it suffered a loss only that it did. In the world of banking, however, lenders interpret either of these events only one way: the customer did not pay as agreed. Many mistakenly believe that a derogatory public record such as foreclosure is somehow worse than petitioning the lender to accept less than owed (short sale). The practical reality is, short sale or foreclosure, one’s credit will suck either way.
#DO A SHORT SALE IN NY FOR A FREDDIE MAC MORTGAGE LOAN PROFESSIONAL#
Given the inherent conflict of interest—a real estate agent makes a commission on a short sale and doesn’t in a foreclosure—the real estate professional should proceed cautiously when counseling a seller. Some real estate agents and short sale investors (those seeking to purchase a homeowner’s property prior to foreclosure)–and even some mortgage professionals–suggest to the distressed homeowner that a short sale isn’t as damaging to one’s credit as a foreclosure. This is an important topic because the last real estate downturn (during the 1990s) preceded the widespread use of FICO scoring and automated underwriting systems.
deed-in-lieu.Īs a mortgage broker myself, I get many calls these days from consumers wondering what affect a short sale or foreclosure (or deed-in-lieu of foreclosure) will have on their credit. You’re very mistaken as to the impact of foreclosure vs. So, below is the response from Catherine Coy to my post from last December “Will “Forgiven†Debt Affect My Credit Score?” I figured it would be to everyones interest to have the comments published as a post. Recently another reader, who happens to be a very knowledge mortgage broker, left me a comment clarifying the current guidelines and how things are viewed today.
I had discussed this point in response to a visitor question back in December 2007. Also, from the recent changes to credit guidelines it may be well after 2011 that you can even apply for a mortgage loan. Then you should not have any derogatory items (late payments) since June 2009. For example lets say you do a short sale this month (June 2008) and you apply for a mortgage in June 2011.
Not only that but when you apply for credit in a few years, its really important to not have any derogatory items on your credit report for at least 24 months prior to an application. The extent to which your score falls may differ, but to any future creditor it is all the same. Whether you foreclose, do a short sale or go through a deed in lieu of foreclosure your credit is shot.
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