How badly will a “short sale” affect my credit?

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I owe a home that I am no longer living in (I was promoted and moved out of state). I absolutely cannot continue to pay both the mortgage as well as my rent in my new city. My house has declined in value by at least 50k since I purchased it in November 2005 (the house is in Florida). I don’t know what to do other than a short sale but I’ve heard that this can affect your credit but no one can tell me how much. I have a tenant who is renting from me but the market is so bad in my area, the rent he’s paying is only covering a fraction of the mortgage. Will a short sale completely ruin my credit? Are there other alternatives I can investgate?

Also….I already applied for a “loan modification” but am not hopeful that I will be approved.

  1. Reply
    May 18, 2011 at 11:09 am

    If you sell short, you will still owe the difference. If you pay the difference then there is no problem. If you default on the loan you may not be able to get another loan or even a credit card for 12 years, and you will have to pay taxes on the difference as if it were income.

    You said you got promoted and moved. check with your employer to see if they can help.

    Talk to a financial planner (that charges for service and does not sell insurance) They can help you with options.

  2. Reply
    Serge M
    May 18, 2011 at 12:03 pm

    If the mortgage holder agrees to a short sale, it should not be detrimental to your credit rating. Technically, the sale results in paying off the mortgage. That is, the mortgage holder agrees to accept the proceeds of the sale as payment in full.

    By accepting a short sale, the lender avoid a foreclosure, and the owner repays the loan for less than is owed. There is a cost to foreclosing and collecting the deficit resulting from the subsequent sale of the house may not be possible and is in any case costly.

  3. Reply
    May 18, 2011 at 12:27 pm

    unfortunately in this market even if the bank is willing to do a short sale does not mean the place will sell, how much are they willing to short? also very hard to get a handle on what the current value of property with homes prices still in decline

  4. Reply
    May 18, 2011 at 12:59 pm

    You don’t say how much of a short sale you need, which is an important aspect of the equation, because the lender will need to approve the short sale.

    There are other factors also, how late payments will be involved, and the short sale will be reflected on your credit report. It is not possible to answer with accuracy how many points your score will go down, but it will be going down.

  5. Reply
    May 18, 2011 at 1:31 pm

    As a Realtor currently working with 6 short sales, I can honestly say the answer is not short enough for this forum.

    A true short sale is when the lender eats the difference between what you owe and what you sell for – and they may be willing to do that if your Realtor can do appropriate market comps and knows how to talk to the lender’s review board.

    Another alternative is a combination of selling short and assuming the remainder on a non-secured line of credit. More of the larger lending institutions are allowing this option – which does NOT ding your credit – as a means of losing less money for themselves. Again, a Realtor familiar with the rules regarding this combination is best able to help you decide which way to go.

    A Short sale will affect your ability to purchase a new property at a decent interest rate for up to 3 years, depending on the amount short you are. However, option 2 means that you will be able to get a new home loan at a good rate – but you will affect the amount of property you can buy because you will still have the unsecured line of credit to pay off. A forclosure will not disappear from your credit report and should be avoided if possible

    Contact several Realtors in your home’s area and interview for your specific sale needs – if a Realtor has done at least 6-12 short sales or preforclosure sales and doesn’t feel like a total shark, sign on right away!

  6. Reply
    May 18, 2011 at 2:17 pm

    even if your lender would agree to a short do not plan on it selling anytime soon. In order not to damage your credit you would still need to pay the difference between what you owe and what the property finally sells for. Florida is a very easy state for a creditor to get a judgment for the difference, collecting it is another matter but will be on your credit

    I was just looking at volusia county foreclosure sales this morning on the county website and the foreclosures headed for public auction this and next month its alomst impossible to believe the number of them on the list.

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