Fort Lauderdale Beach Real Estate

Jon C. Mumford, REALTOR-ASSOCIATE, CRS, ePRO, GRI, GREEN, RECS, SFR, SRES

Short Sales, closing them and credit score implications

Posted by fortlauderdalebeachrealestate on April 30, 2008

As we all know there is no shortage of properties listed for sale in South Florida as “short sales”.  I wrote about this topic some time ago and just wanted to share some new information.  I recently attended another training seminar on short sales and learned several valuable tips.  This was given by Joe Roberto, of Roberto & Associates, a local title company in the business for 18 years.  I strongly recommend him and his company to anyone, whether a buyer or seller in a short sale situation.  Although in Broward County the buyer usually chooses the title company and pays for the title insurance, I would suggest that my sellers in short sale situations ask the buyer to use Roberto & Associates, and do so in the actual listing itself.

Although short sales are long and involved, having an agent and title company well versed in them can make the process move along much faster.  A few tips that I learned are:

  • Don’t do a deposit upon banks approval, have the buyer pupt $1,000 down with the offer and hold it in escrow
  • Don’t do a closing date so many days out from the banks approval, do an actual date about 45 days out.
  • Include a preliminary closing statement showing payoff amounts to the first and second
  • Generally speaking, the first mortgage holders seems to be looking for about 80% of the balance while seconds are looking for about 10%-this is all negotiable and depends on all the other pieces of the puzzle

While this is still a better alternative to foreclosure, it does have an affect on your credit score.  I just found an article that talked about it and wanted to share it with you.

Jon

How is the Seller’s Credit Effected By a Shortsale?
By: Tim and Julie Harris

Sellers will take as big a hit on their credit by going through foreclosure as giving the lender a deed-in-lieu of foreclosure. Points lost on a FICO score are as follows:

Foreclosure or Deed-in-Lieu of Foreclosure
Both of these solutions affect credit the same. Sellers will take a hit of 200 to 300 points, depending on overall condition of credit. This means if a seller’s FICO score before foreclosure was 680, it could dip as low as 380.

Short Sale
The effect of a short sale on a seller’s credit report is identical to that of a foreclosure. The ding on credit will show up as a pre-foreclosure in redemption status. Which will result in a loss of 200 to 300 points. This means a short sale with a previous FICO of 720 will see it fall from 520 to 420.

The effect on a consumer’s credit report—foreclosure vs. short sale—is the difference between being hit by a train or a bus.

Here’s why:

Waiting Period Before Buying Another Home

Foreclosure or Deed-in-Lieu of Foreclosure
A seller who wants to buy another home after foreclosure will end up waiting about 36 months before a lender will offer any kind of interest rate that makes sense.

Short sale
A notation on a consumer’s credit profile of ‘settled for less than owed’ (short sale) precludes the consumer from obtaining an institutional loan for 24 months, depending on the lender’s program and regardless of FICO score. Fannie Mae guidelines require 24 months seasoning, and there’s no way to get around this.
   
Short Sale/Foreclosure Deficiency Judgments

The bad news is a seller could be subject to a deficiency judgment for the difference between the loan amount and the amount paid. In California, purchase money loans are not subject to deficiency judgments; however, hard money loans, equity loans and refinances are. Some other states have laws regarding personal guarantees, which could also result in a deficiency judgment, if the home owner is held personally liable for loan repayment.

The lender has sole discretion whether to pursue a deficiency judgment in those instances when the judgment is permitted. To determine whether a pending foreclosure or short sale is subject to a deficiency judgment, talk to a real estate lawyer.

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10 Responses to “Short Sales, closing them and credit score implications”

  1. Landonald said

    Wonderful read, thanks. It’s much easier to understand now what a credit score is really about and how it is helpful. Even if you are not in debt, keeping a well balanced credit score is really important.

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