How a Short Sale Affects a Homeowner's Credit Score

After a Short Sale is completed, the Bank reports the transaction to the Credit Bureau as “Settled for Less.” A Short Sale will bring the credit score down about 150-200 points. Besides the Short Sal, every late payment is reported to the same bureau as 30-, 60- or 90-day late payment, and these actions will bring the credit score down as well. Each late payment will the homeowner's FICO score 10-15 points down.

A good REALTOR/SHORT SALE SPECIALIST has to try to save a homeowner’s FICO score, by simply negotiating with the Bank. In most cases, saving the homeowner's FICO score will not likely happen, but if you do not ask, you will not receive. If the homeowner is short only $10,000 to $15,000, and the homeowner wants to save his/her FICO score (providing that a move is necessary and does not have money to cover the difference), the REALTOR/SHORT SALE SPECIALIST can negotiate with the Bank about the pay off. Usually the Bank will agree to give to a homeowner an unsecured loan for the difference (for this example, $10,0000 to $15,0000) for 5-7 years with 0-1% of interest. Instead the Bank will report the transaction as paid in full and it will not have any negative effect on the homeowner’s FICO score. And the homeowner will be able to move on with life and buy another property if desired.

After the Short Sale is reported to the Credit Bureaus, the homeowner will be able to buy another property after 2 years. If compared to Foreclosure, a homeowner will be able to purchase another property in 5 years; Deed in Lieu, 5 years; Bankruptcy 7 years; Judgment, 10 years. The 2-year wait period to purchase a property after a Short Sale is one of the biggest advantages of the Short Sale compared to the others options listed above.

Another advantage of a Short Sale is that the homeowner will be able to get a better selling price when he/she chooses this transaction (usually 10% below the market price) than if the Bank chooses to do a Foreclosure. How this will benefit the homeowner if no proceeds are received from the Short Sale anyway?

Let’s assume that after the homeowner purchases the property, down the road, he/she pulls equity from the property (majority of homeowners do) as a Second Lien. This makes the the second loan a recourse loan, meaning that the Bank (second Lien Holder) can sue the Seller for the Deficiency Judgment after transaction is over. By controlling the price in the Short Sale transaction the homeowner has a chance to reduce the amount that the second Lien Holder can sue him/her for, and that means the Bank will bring down the deficiency amount as well. Whereas, in a Foreclosure, the Bank will sell the property 30-40% below the market price and the second Lien Holder will be able to sue the homeowner for the full amount of the Second Loan.

Ihor Pochay
REALTOR/SHORT SALE SPECIALIST
Tarbell, Realtors
(909) 629-6186 ext. 339
ihorpochay@hotmail.com
http://www.myrealtorihor.com/