The Effect of Doing a Short Sale on Your Credit Rating

Homeowners who are having trouble with their finances and facing foreclosure often consider doing a short sale in order to avoid the foreclosure process. This is exactly the case now in the real estate market where the subprime adjustable rate mortgage problem has created large-scale foreclosures and tremendously dragged the value of real estate down.
 
 Many homeowners have decided to short-sell their properties without considering the impact of a short sale. The reality is that a short sale can still affect your credit. When in doubt, secure a Real Estate Attorney. One may think they can’t afford one, but paying an hourly fee for advice is well worth it, considering the unknown implications one may have, especially if more than one lender is involved. Unless you have a “release of lien,” you may be surprised to find that a collection company may start calling you, or worse, a lien may be placed on a future property.
 
 Normally, a foreclosure will get your credit rating to plunge down 200 to 300 points and may take considerably longer to reestablish your credit rating once your financial troubles are worked out. A pre-foreclosure FICO score of 675 could sink to as low as 395, basically disqualifying you from future credit approvals. It may take three years before you can qualify for another home loan.
 
 In a short sale, the bank or banks agree to allow the homeowner to sell the property for less than the mortgage owed for the home. In essence, the bank or banks are taking a loss. Never assume that MPI or MIP (insurance premiums) is there for your benefit; this insurance company may be liable to the bank for the difference, but they may look to you to recover the difference they paid to a mortgage company.
 
 Working with your bank for a win-win is always the best option, but as with any transaction, one should always have representation. Your REALTOR® can guide you with the initiation of a short sale, but once you have all of the documents in hand from the lenders affected, please consider a visit with a Real Estate Attorney to review any potential financial obligations. Once you have discussed this with your Attorney, your REALTOR® can list the property for you and handle the marketing and sale of your property.
 
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