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Short Sale Affects Credit Score - how many points do you lose?

Author: Jessica Bennet
Community Mentor
Ask Jessica
Posted on: 29th Dec, 2005 11:49am
A Short sale is where the lender agrees to accept an offer for a house that is less than the amount owed on the mortgage. Short sales happen when the owner is behind or about to become behind on their mortgage and want to avoid foreclosure. Moreover, if the home is located in an area where home prices are on a decline, then it may be sold off for less at a price that isn't enough to cover the loan balance.


A short sale is less damaging to your credit score than a foreclosure. Your FICO score will drop by 75-100 points if you do a short sale, compared to 250 if you get a deed-in-lieu.

By attempting a short sale, the borrower can avoid foreclosure and a decrease on their credit score. Moreover, a short sale may be faster and less expensive compared to foreclosure.

How to negotiate for short sale..


In most cases, borrowers are approved for the sale only after they have been in default and the lender has served them with a Notice of Default. At times, the borrower has the option to negotiate a short sale in case he's unable to pay off the loan and intends to move out. In this case, the borrower should provide the lender with a hardship letter stating why he cannot continue to pay his mortgage and why a short sale is the best option for both parties. It's better to take help of a real estate agent or attorney to negotiate a pre-foreclosure sale with the lender's Loss Mitigation Department.


Posted on: 29th Dec, 2005 11:49 am
My credit score is 550 and I am selling a house. I owe 50k and I am looking to do a short sale for 45k should. How does short sale affect credit score.
After our short sale on our record when we are ready to buy a new home will we be able to get a prim rate or will it be a sub prime rate for a new morgage? We have to move to another state and can not sell our home for the loan amount.
Posted on: 02nd Mar, 2009 10:40 am
we are thinking of a short sale. I was reading about getting some secure credit cards to rebuild your credit. Do the credit card companies cancel your credit cards when your short sale goes through?
Posted on: 02nd Mar, 2009 03:09 pm
Welcome max,

Well, I haven't heard of credit card companies canceling the secured credit card after short sale. I don't think you will face any problems regarding credit card after short sale.
Posted on: 02nd Mar, 2009 11:26 pm
We sold our home in Dec 08 through a short sale, we had already purchased a new house in Jan 08. The bank made us sign a form stating we were responsible for the 64K that was still owed from the short sale, we don't have the money to pay this. Can the bank put a lien on our current home from the short sale of the other home. We currently have a mortgage on our home but want to pay it off in full from my husbands former 401K since he is retired. We don't want to pay off our home if the bank can put a lien on it because of the other house.We're not sure what to do.
Posted on: 15th Mar, 2009 03:08 pm
Hi mjwildon,

Yes, the bank can place a lien on your current property in order to recover the dues of the earlier mortgage from you. The lender may even garnish your wages to get back his due amount.

Thanks
Posted on: 15th Mar, 2009 08:21 pm
Bought a home for 546K, put 200K down. Owe 346K 1st mortgage, owe 65K 2nd mortgage. Home is probably worth between 225K - 290K. I want to somehow wipe out both mortgages and start over without hurting my credit score (700). Business is slow and cash is getting tight. Have never been late on any of the payments for 2 years 3 months. I will take any suggestions on what I need to do.
Posted on: 28th Mar, 2009 05:57 pm
Hi Guest!

Welcome to forums!

You can't wipe off the mortgage. You need to pay off the mortgage. You can list the property in the market and try to sell it off. However, once you sell off the property, your mortgage will become due immediately and you'll have to pay it off.

Sussane
Posted on: 29th Mar, 2009 09:45 pm
how will a short refi effect my credit score,and has anyone done a short refi yet...and does it work
Posted on: 30th Mar, 2009 02:53 pm
hi bellsearch,

a short refinance is a transaction wherein the lender agrees to accept an amount lower than what you actually owe and allows you to refinance with another lender. this avoids a foreclosure and helps you retain the ownership of the property.

as far as i know, if you are current on you existing mortgage, it will reflect on your credit report as 'settled as agreed' and will cost you about 20-40 points. but if you have late payments on the current mortgage, then it will drop your credit by almost 80 points.
Posted on: 30th Mar, 2009 11:56 pm
My wife has a house in Michigan that she makes high monthly payments for and she doesnt even live in the house. She is currently in the navy stationed in Japan. She has tried to sell the house but its difficult being in the military plus being over seas. She is thinking of short selling but doesnt want it to affect her credit which is excellent. What should she do?
Posted on: 05th Apr, 2009 08:52 pm
Hi

A short sale will affect her credit, though not as much as a foreclosure or deed in lieu will do. If she doesn't want her credit to be affected in any way, she has to pay off the mortgage on it in full. If she has a high monthly payment, she can request the lender to modify her loan to lower the payments. This will not affect her credit. But if she sells the house without paying off the mortgage it will definitely damage her credit score.
Posted on: 08th Apr, 2009 06:36 am
What exactly is reported on a borrower's credit report when the lender agreed to a short sale vs. when the lender had to foreclose? Does the final reporting change if the borrower agrees to be responsible for the remainder/deficient debt?
Posted on: 11th Apr, 2009 08:00 am
I have a condo in Calif in a resort community that was orginally purchased as a 2nd home. Aprox 3 years later I converted it to a rental in lieu of taking a loss on the property thinking the market would improve. Obviously - it has become worse. Will the banks consider a shrot sale in this situation.
Posted on: 12th Apr, 2009 11:57 pm
Hi,

To JayBee,

Whether a lender forecloses or short sells the property, both will be reported in the credit report. In case of a foreclosure, your credit score will get lowered by 250 points whereas in short sale, your credit score will get dropped by 80-100 points. If the borrower pays off the deficient debts, then the lender will stop the foreclosure or the short sale but the late payments will be mentioned in your credit report.

To Dave1G,

You can apply to your lender for a short sale by writing a hardship letter. However, it would be the discretion of the lender whether he would accept the short sale request or not. Moreover, you should note that a lender will only consider your short sale request if you are delinquent on your mortgage payments.

Thanks.
Posted on: 13th Apr, 2009 03:43 am
I am currently in a short sale with my investment property and I just found out through my agent that my second loan wanted about $ 8,900.00 to proceed with the short sale (I owe $90,000 total for 2nd loan) I dont have money so we offered $1,000.00 because my agent said we had to offer something, if not we would kill the short sale. Plus my 1st is already giving them $3,000.00 But the rest will go into a recovering account (collections) and I would have to negociate with them again. Does this sound normal? Should I just foreclose? I obviously dont have the money and even if I make payment plans with the collection dept it will be hard to pay. (they will send all the remaining amount to collections)
Posted on: 29th Apr, 2009 09:46 am
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