Short Sale VS Foreclosure: Effects On Credit
A very experienced real estate agent in St. Petersburg, Florida, Sandy Ewing of Tourtelot Brothers, sent me an e-mail recently in which he raised some very interesting questions about the hidden dangers of short sales which are now so common in today's marketplace. Fully one-in-three real estate sales in Pinellas County, Florida, are distress sales -- either short sales or foreclosures.
These distress sales, as Ewing correctly pointed out, are forcing real estate prices to fall at alarming rates. Moreover, Ewing thinks that this trend may continue well into the future and be especially damaging to sellers who are being forced to sell due to illness, job transfers, forced retirement and layoffs, and other matters not fully controllable by the seller.
One of the things that Ewing pointed out was the danger a short sales does to someone's overall credit rating.
There is a misconception among many sellers that if they get permission from their mortgagee to conduct a short sale, that the debt -- as one seller said to me recently -- "is wiped off my credit report."
I hate to say this, but that is not the case.
The effect of a short sale on a person's credit is identical to that of a foreclosure. The credit people with whom I have spoken say a short sale represents a ding to a seller's credit of from 200 to 300 points. A foreclosure represents the same drop in credit score. In either case, if you had a credit score of, say, 650 and you do either a short sale or a foreclosure, you are likely looking at a new credit score of from 450 to 350. With a credit score that low, good luck getting another mortgage, car loan, boat loan, tuition loan or virtually any other kind of loan.
The other danger to be found in a short sale is something called a deficiency judgement. The lender, in many instances, has sole discretion about whether to pursue a deficiency judgement against the seller. Before you just up and decide to do a short sale, you need to have a heart-to-heart discussion with a real estate attorney. In fact, having a discussion with a real estate attorney before pursuing a short sale or a foreclosure is highly advisable.
The other thing to consider when trying to decide to pursue a short sale or foreclosure is the time period before you can buy another house when a mortgage will be involved. Currently, you may have to wait from 24 to 72 months before you will see another affordable mortgage with a foreclosure on your credit report, but only about 24 months with a short sale. To be honest, that may be the only possible advantage to a short sale over a foreclosure.
So, before you opt for a short sale or a foreclosure remember this: from a credit standpoint, you are really making a choice between getting run over by an east-bound train or a west-bound train, and it's going to require many months before you recover.
For more information about real estate in the Tampa Bay area, visit my website at http://www.thestpeterealestatesite.com/.
These distress sales, as Ewing correctly pointed out, are forcing real estate prices to fall at alarming rates. Moreover, Ewing thinks that this trend may continue well into the future and be especially damaging to sellers who are being forced to sell due to illness, job transfers, forced retirement and layoffs, and other matters not fully controllable by the seller.
One of the things that Ewing pointed out was the danger a short sales does to someone's overall credit rating.
There is a misconception among many sellers that if they get permission from their mortgagee to conduct a short sale, that the debt -- as one seller said to me recently -- "is wiped off my credit report."
I hate to say this, but that is not the case.
The effect of a short sale on a person's credit is identical to that of a foreclosure. The credit people with whom I have spoken say a short sale represents a ding to a seller's credit of from 200 to 300 points. A foreclosure represents the same drop in credit score. In either case, if you had a credit score of, say, 650 and you do either a short sale or a foreclosure, you are likely looking at a new credit score of from 450 to 350. With a credit score that low, good luck getting another mortgage, car loan, boat loan, tuition loan or virtually any other kind of loan.
The other danger to be found in a short sale is something called a deficiency judgement. The lender, in many instances, has sole discretion about whether to pursue a deficiency judgement against the seller. Before you just up and decide to do a short sale, you need to have a heart-to-heart discussion with a real estate attorney. In fact, having a discussion with a real estate attorney before pursuing a short sale or a foreclosure is highly advisable.
The other thing to consider when trying to decide to pursue a short sale or foreclosure is the time period before you can buy another house when a mortgage will be involved. Currently, you may have to wait from 24 to 72 months before you will see another affordable mortgage with a foreclosure on your credit report, but only about 24 months with a short sale. To be honest, that may be the only possible advantage to a short sale over a foreclosure.
So, before you opt for a short sale or a foreclosure remember this: from a credit standpoint, you are really making a choice between getting run over by an east-bound train or a west-bound train, and it's going to require many months before you recover.
For more information about real estate in the Tampa Bay area, visit my website at http://www.thestpeterealestatesite.com/.
-30-
posted by Terry Ward at 4:37 AM
0 Comments:
Post a Comment
<< Home