Loss Mit Services

Short Sale Tip of The Week 6-10-09

Posted on 09. Jun, 2009 by ctlms in Short Sale, foreclosure

What are the consequences of a short sale?

There is a lot of misinformation out there regarding the positive and negative effects of a short sale.

Over the next few weeks we are going to discuss the 3 areas of concern when a seller short sales their house; Credit, Taxes and the Deficiency.

Before we proceed I should make it clear that I am not an attorney, CPA or counselor of any kind.  As a real estate agent your clients often expect you to know EVERYTHING about EVERTHING.  But in this case a good general knowledge is good, though you should always refer your client to the correct licensed person to answer their specific question such as an attorney, CPA or credit expert.  But without a general knowledge you would probably look like a deer in the headlights when asked about these subjects so let’s get into them.

This week we will touch on the credit implications to a seller that sells their home through a short sale.

The impact on the seller’s credit is not something that can be negotiated.  The banks are required to accurately report the status of the account to the credit bureaus.  A short sale will most often show up on the seller’s credit as “Settled for less than full payoff” or something very similar.  This WILL cause an immediate point reduction to their credit score.  However unlike foreclosure or bankruptcy, that are reported alongside other judgments and court actions against the seller, this will only be reported for the accounts that are settled with the short sale.

Bankruptcy and foreclosure stigmatize your credit for 7-10 years.  However short sales have a one time score reduction from which the sellers can begin to increase their score once again.  If they did not miss any payments their account would be shown as “paid as agreed” all the way until it was “settled for less than full payoff”.  However if they missed payments and possibly had foreclosure initiated against them; well then their credit is going to be crap for a while and a short sales effect on their score will probably not be top priority to them.

The take away here is that a short sale has less of a negative impact on the sellers score than bankruptcy or foreclosure, but there will be an effect.

Next week we will discuss the Tax consequences of a short sale.  The often feared and misunderstood “1099”.

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Tags: bank, foreclosure, homeowner, lender, negotiate, Real Estate, realtor, seller, Short Sale