Credit hit on Short Sale vs. Foreclosure (mortgage, mortgages, sales)

[John12341234]

Is there data on the average hit to your credit score for each of these situations? There has to be. It's happened thousands of times. You should be able to look it up and say, "oh, a short sale will generally knock my score down 150 points and a foreclosure will result in a 200 point hit." Is there data on this so we don't have to rely on people's opinions?

[willow wind]

Unfortunately, there is no absolute number. That's because there are too many variables. Much of the credit hit is going to depend on how the lender reports the short sale. There are a few ways to do so and it will vary by lender.

The other variable is the borrower himself and his overall payment status on debts.. If the borrower has only the short sale to contend with, it's better than being late on other payments also.

[NinaN]

We are starting to see short sales getting approved with no late payments. In that case, your credit will be affected differently than if there are many missed payments.

Just with everything else in short sales, "it depends", but generally speaking a short sale is better than foreclosures.

[John12341234]

yea, that's all I've heard, "short sales are better than foreclosures."

There are 3 general scenarios, short sale with no late payments, short sale with late payments, and foreclosure. There should at least be general numbers for how much your credit gets dinged for each scenario. It's happened thousands of times. There has to be average numbers.

[Copsgirl73]

I dont know any comparison between the two but in our case, we short sold three years ago. We had near perfect, very high credit scores. We are just now finally hitting the "above average" mark with our scores. Our reports still show the dings from when we stopped paying our mortgage

[willow wind]

Trying to figure this out is frustrating isn't it.

Part of the problem is that lenders have three ways of reporting short sales. There is no consistency in what they will do. Thus, there is no way to extract out a definitive number for each scenario.

A short can be reported to a credit bureau as:

paid as agreed
negotiated
settled

The first is the best and has the least adverse impact on credit. The other two ways will really ding people.
You can try contacting your lender and asking how they do it. But don't expect a truly honest answer
as much can change between the start and end of the process and will depend on the final resolution of each individual short sale.. I also highly doubt that anyone is keeping statistics on any of this.

[aneftp]

I really don't get people pushing their luck with demanding everything from a short sale.

1. The government is already giving you thousands or hundreds of thousands of dollars in tax breaks by forgiving you on the taxes owed by short selling the house (primary homes with Mortgage and Forgiveness Act of 2007).

2. The bank is forgiving you thousands or hundreds of thousands on the debt owed when they can easily issue judgments that will linger on with you for close to 10 years depending on state laws.

You have to understand the legality of credit reporting.

The bank files with the IRS they are issuing a cancellation of debt (1099c). That way they are able to capture the legal tax deduction from a cancellation of debt. They must report in full how much is being forgiven and that they are cancelling the remainder of the debt.

The bank also files with the credit agencies that the loan is:
1. Paid as agrees
2. Paid in full
3. Settled for amount less than owed (or paid for less than full balance)

You are in essence asking the bank to lie for you. They would be committing fraud if they honor these request (that the loan is paid in full when it wasn't paid in full). If homeowner A got that on their credit statement, why didn't homeowner B get paid in full on their credit report? It can go on and on. It's a class action lawsuit waiting to happen if the banks honor these request.

This is what Bank of America's website says,
"If a short sale is completed on your property, we will report that your loan was “paid in full for less than the full balance.”

Citi: "We would report the loan as settled for less than the full balance,"

Wells Fargo: "For a short sale, [Wells Fargo] reports an accounts status of 13 (paid or closed account/zero balance), along with the special comment code AU (account paid in full for less than full balance)

Be thankful the bank isn't pursing you for a deficiency. Be thankful the IRS isn't hitting you with a huge tax bill.

Most "paid for less than full balance". Your credit will be alright in about 3 years. Won't be 740 plus. But it should be in the mid 600s, maybe high 600s in 3 years with on time payments even missing multiple mortgage payments that eventually resulted in a short sale. It's better than nothing. Certainly better than a foreclosure. 3 years goes by rather quickly. Not the end of the world. The end of the world is a savvy debt collector buying your defaulted loan for pennies on the dollar and than nailing you 5 years down the road with a $100K deficiency judgment.

If you don't miss any payments, your credit hit may not be much at all. Maybe 100-150 points. But if you are at like 800 to began with. It only takes you down to 650, well enough to qualify for some mortgages without delay.

Nurse at work at a short sale 14 months ago. Missed 2 payments. Divorce. Her credit hit has been only 100 points even with a negative credit statement "settled for less than full balance" Her credit score is still 680 after a short sale and 2 missed payments.

[Spaten_Drinker]

My score went from the about 750 to 620 when did a short-sale on our home in August 2011. We were just APPROVED today for an FHA loan for a new home last week, so I did not care.

[frankrj]

There are a few lenders who will do a loan for you one day after a short sale or foreclosure if you have a 660 credit score. It will not be your local big bank.

[fishbrains]

I am about 3 years away from my short sale. Credit dropped from 720 or so, but is back up to 690. I recently purchased a house.