Credit After a Short Sale — The Honest Comparison to Foreclosure

Posted on 28. Sep, 2026 by ctlms in Blog, My Blog, Short Sale, foreclosure

“Doesn’t a short sale look better on my seller’s credit than a foreclosure?” I get some version of this question from listing agents and attorneys almost every time a file gets referred to me, usually because the seller asked them first and they want to give a good answer. It’s a fair question. I wish I could just say yes. The honest answer is closer, and a lot more useful, than that.

Do credit scores actually treat a short sale differently than a foreclosure?

Not the way most people assume. A credit scoring model doesn’t have a category called “short sale” and a separate one called “foreclosure.” It scores what actually gets reported to the credit bureau about the account: paid as agreed, settled for less than the full balance, charged off, ninety-plus days late, and so on. A short sale and a foreclosure usually get reported as some version of “not paid in full,” coming off what was probably a clean payment history before the trouble started. The label on the closing paperwork doesn’t change what the algorithm sees. What changes the score is the derogatory mark itself.

So how big is the hit, really?

Bigger than most sellers expect, and close to the same either way. Credit-scoring research on mortgage defaults puts the drop at roughly 85 to 160 points, and that range applies whether the account closes as a short sale, a foreclosure, or a deed-in-lieu. Where you land in that range depends mostly on where you started. A seller sitting at 780 loses more, in raw points, than a seller sitting at 640 — the higher the score, the more room it has to fall. I tell every referring agent this up front, because the seller is going to hear it from someone eventually, and I’d rather it be on day one than from a lender six months from now.

Where does the real credit saving come from?

Here’s the part nobody explains to the homeowner, and it’s the whole reason the timing of the referral matters more than anything I do on the file once I have it.

The short sale itself is one derogatory entry. Every missed mortgage payment leading up to it is another one. Thirty days late gets reported. Sixty days late gets reported. Ninety, a hundred and twenty, each one is its own mark on the report, and each one stacks on top of the last. By the time a seller has ridden it out for a year and then finally calls somebody, the short sale is landing on top of twelve months of lates, and the score at the end reflects all of it.

Now compare that to the seller who gets a file to me while they’re still current, or one payment behind. The short sale still hurts. It still lands somewhere in that 85 to 160 range. But it’s landing on a clean history instead of a year of missed payments, and the score at the end is in a completely different place. Same short sale, very different result. The fewer missed payments on the report, the smaller the total hit.

That is the honest version of “a short sale is better for your credit.” It isn’t better because of what it’s called. It’s better because a seller who deals with it early takes one hit instead of thirteen. Being proactive is the credit saver. The short sale is just the vehicle.

What about qualifying for a mortgage again?

This is the second real advantage, and it points in exactly the same direction.

  1. Fannie Mae cuts the wait roughly in half. A conventional buyer needs 7 years after a foreclosure to qualify again, or 3 years with documented extenuating circumstances. After a short sale, that number drops to 4 years standard, or 2 years with extenuating circumstances. Same credit hit, half the wait.
  2. FHA is 3 years after either one. FHA doesn’t distinguish much between a short sale and a foreclosure on the standard timeline — both are a 3-year wait.
  3. FHA has a zero-wait path, and it rewards the proactive seller. If your seller’s mortgage payments and every other monthly debt — credit cards, car loan, student loans, all of it — were current for the full 12 months before the short sale closes, FHA doesn’t require any waiting period at all. That’s a real advantage, and it’s the one most agents have never heard of. Notice who qualifies for it: the seller who stayed current. The same seller who took the smaller credit hit.

The advice that costs your seller both

Here’s where I have to say the uncomfortable thing out loud, because I see this go wrong. Somewhere along the way, somebody tells the homeowner to stop making the mortgage payment during the short sale process — sometimes it’s framed as “it’ll make the file move faster,” sometimes as “you won’t need the money anyway once it closes.” Every missed payment that follows is another mark on the report, and the first one takes the FHA zero-wait path off the table. Nobody explains that trade to the seller at the time. I do, every time it comes up, because it’s the difference between your seller buying again next year and your seller buying again in three, with a lower score when they get there.

[story — a referred file where the seller had been told to stop paying months before it reached me, and what that cost them on both the score and the zero-wait path. Fill in or delete before publishing.]

One more thing that moves the needle

Whether the file closes with a deficiency balance or without one. A short sale negotiated to a full release, with no money still owed on paper, tends to land a little softer than one that reports a balance still outstanding. That’s one more reason how a short sale gets negotiated matters, not just that it happened instead of a foreclosure.

The takeaway

A short sale does not spare your seller’s credit the way the old sales pitch claims. The score drop lands in roughly the same range as a foreclosure — 85 to 160 points, worse for higher starting scores — and anyone telling a seller otherwise is setting them up for a bad surprise later. What actually limits the damage is getting there early: fewer missed payments before the short sale means a smaller total hit, and it keeps the FHA zero-wait path and the shorter Fannie Mae timeline in play. That’s the pitch that holds up, because it’s the true one.

Tell your seller the real version. A short sale isn’t a credit-repair strategy. Getting the file to me early is the closest thing to one.

Send me the address and the approximate payoff. I’ll tell you within a day whether it’s worth pursuing, and what the road back looks like for that seller’s loan type.

As always, feel free to reach out to me with any questions.

Sean Wilder
Loss Mit Services
860-265-3727
CT Debt Negotiator NMLS #828273
Loss Mit Services is a dba of Accredited Home Services, LLC · CT Debt Negotiation License DN-828273

Commission on a Short Sale — What Lenders Allow, and How the Reduction Actually Gets Negotiated

Posted on 21. Sep, 2026 by ctlms in Blog, Foreclosures, My Blog, News, Real Estate, Short Sale, foreclosure


“Am I actually going to get paid on this?” I get that question from agents all the time, usually about two minutes into the first phone call about a short sale listing, and I’d much rather you ask me on day one than find out the answer on the settlement statement in month five. So this post is the honest version, the one you’d get if you called me.

Do lenders cut commissions on short sales?

Yes. Not always, and not nearly as often as the 2009-era horror stories would have you believe, but it happens, and anyone who tells you it never happens is selling you something. What I want to do here is explain WHY it happens, because once you understand the why, you know exactly when to worry and when not to.

Start with who’s paying you. On a normal sale the seller pays the commission out of their equity. On a short sale there is no equity. Every dollar on that settlement statement, your commission included, comes out of the net that goes back to the investor who owns the loan, and that investor is already taking a loss. The banks don’t do short sales to help people, they do short sales to help themselves, and “help themselves” means recovering more than they’d expect to recover by foreclosing. So they have rules for what they’ll allow to come off the top, and the rules depend on who owns the loan. Who owns the loan is the first thing you need to know on any short sale, and this is one more reason why.

What do the big investors actually allow?

Here’s where the real numbers live, and they’re better than most agents expect.

1. Fannie Mae. The Fannie Mae Servicing Guide (section D2-3.3-01, if you want to look it up) lists the transaction costs a servicer can deduct from the sale price on a Fannie Mae short sale. Real estate commission is on the list, described as “customary for the market,” capped at 6% of the sales price.

2. Freddie Mac. Freddie put out a bulletin back in August of 2009 telling its servicers they could no longer condition approval of a short sale on cutting the listing broker’s commission, as long as that commission was 6% or under. Above 6%, the servicer is required to renegotiate it down to 6%. That rule has been the practice on Freddie files ever since.

3. FHA. HUD’s pre-foreclosure sale program, which is what an FHA short sale is called, allows a real estate commission of up to 6% as well.

So on the three biggest buckets of loans in Connecticut, a market-rate commission is an allowable cost and, in my experience, it usually survives the approval intact. That’s the good news, and it’s the part the 2009 stories leave out.

Where do the cuts really happen?

Three places, and after more than 2,000 of these I can tell you they’re pretty predictable.

1. Portfolio lenders and private investors. A local bank or credit union that kept the loan on its own books, or a private investor who bought the note at a discount, doesn’t have to follow anybody’s guide. Their “guideline” is whatever the person reviewing the file thinks is reasonable that day. Some are perfectly fair. Some see the commission as the easiest number on the page to trim. You don’t know until you ask, and I ask early.

2. Second mortgages and other junior liens. This is the big one. The second mortgage holder is often being asked to release a five- or six-figure lien for a few thousand dollars, and they know it. They can’t do much about the first mortgage’s payoff. They can’t do much about the taxes. So when they go looking for a place to squeeze, they look at the commission. It’s not personal. It’s just the only line on the statement they think they can move.

3. Any file where the net comes back a little short. This is the one that catches agents off guard. The valuation comes in, the investor runs the numbers, and the offer nets them a few thousand dollars less than their minimum. Somebody has to give. The buyer might come up a little. The seller, by definition, has no money to bring. So the negotiator on the lender’s side looks down the settlement statement and lands on the commission. This is the moment I’m talking about when I say I’ll tell you it’s coming before it comes. A good negotiator sees the net gap when the valuation lands, not when the approval letter shows up.

What changed with the buyer-agent side?

Since the NAR settlement took effect in August of 2024, buyer-broker compensation isn’t offered through the MLS the way it used to be. A lot of agents ask me how that plays on a short sale. The honest answer is that from the lender’s chair, nothing changed. The lender approves what’s on the settlement statement. If the seller is paying a buyer-broker fee, it shows up as a seller-paid cost, and the lender is looking at the total that comes off the top, however it’s split between the two sides. Write it up cleanly, put it where it belongs, and the total is what gets measured against the ceiling.

So here is the question to ask any short sale negotiator, licensed or not, before you refer a client: how exactly do you get paid, and where on the settlement statement does it land? A straight answer to that question is worth more than any promise about approval rates.

One settlement statement

I’ll say this every time commission comes up, because it’s the whole reason a commission can turn into a surprise. Every lienholder on the file gets the same settlement statement with the same numbers. The first mortgage, the second, the HOA, the tax collector, the town. If the first sees one commission figure and the second sees another, you don’t have a short sale, you have a problem that will surface at the worst possible moment. Same numbers to everybody, one statement, is how we run every file, and it’s how your commission stays what it was approved to be.

The takeaway

Lenders do cut commissions on short sales, but not randomly. On Fannie Mae, Freddie Mac and FHA loans, a commission up to 6% is an allowable cost and usually survives. The cuts come from portfolio lenders, junior liens, and files where the net comes up short, and all three of those are visible early to someone who’s looking. Know who owns the loan. Ask your negotiator how they get paid. Insist on one settlement statement. Do those three things and commission stops being the thing you find out about last.

Send me the address, the approximate payoff, and who services the loan. I’ll tell you within a day whether it’s worth pursuing, and what the commission picture usually looks like on that kind of loan.

As always, feel free to reach out to me with any questions.

Sean Wilder
Loss Mit Services
860-265-3727
CT Debt Negotiator NMLS #828273
Loss Mit Services is a dba of Accredited Home Services, LLC · CT Debt Negotiation License DN-828273

Connecticut Foreclosures Are Down 31 Percent. Here’s Why That Isn’t the Good News It Sounds Like.

Posted on 14. Sep, 2026 by ctlms in Blog

Agents keep asking me some version of the same question: "Is the foreclosure wave here yet?" Everybody's been reading the national headlines, and the national headlines say foreclosures are climbing. So I pulled the numbers for Connecticut, and the answer is weirder than a yes or a no. It's "no, and that's not the good news it sounds like."

Let me walk you through what the current data actually says, because there's one number in it that changes how you should be handling every listing appointment with a payoff problem.

What do the numbers say?

ATTOM Data Solutions puts out the foreclosure report most of the industry works from. Their Mid-Year 2026 U.S. Foreclosure Market Report, released in July, counted 227,548 U.S. properties with a foreclosure filing in the first six months of 2026. That's a default notice, a scheduled auction, or a bank repossession. Nationally that figure is up 21 percent from a year ago and up 28 percent from two years ago. Foreclosure starts were up 18 percent. Bank repossessions were up 33 percent. So yes, nationally, the trend is up.

Connecticut went the other direction. 1,763 filings in the first half of 2026, which is DOWN 31 percent from the first half of 2025 and down 38 percent from 2024. That works out to 0.11 percent of housing units, or one in every 875. We rank 29th out of 50 states. The most recent monthly report, July 2026, had Connecticut at 323 filings for the month, one in every 4,773 housing units.

So if you've been waiting for a flood of distressed listings to show up on the public foreclosure lists, the data says you're going to be waiting a while. That's the part that sounds like good news.

What's the number that actually matters?

Same ATTOM report, different table. A Connecticut foreclosure that was completed in the second quarter of 2026 had been in the foreclosure process for an average of 1,626 days. That is about four and a half years. It's the fourth longest timeline in the country, behind Louisiana, Hawaii and New York. The national average is 563 days, and nationally that number has been dropping for seven quarters in a row. Ours hasn't really moved.

Why is Connecticut so slow? Connecticut is a judicial foreclosure state. The bank can't just post a notice and hold an auction the way they can in Texas, where the average is 155 days. They have to file a lawsuit, serve the homeowner, get through the court's Foreclosure Mediation Program if the homeowner is an owner-occupant and elects it, get a judgment, and then either a strict foreclosure with law days or a foreclosure by sale with a committee auction. Every one of those steps has a calendar attached to it, and every one of them can get continued. I'm not knocking the process. It gives homeowners real protection. But you need to understand what it does to the numbers on the file.

So what does a four-and-a-half-year timeline do to a file?

Here's the part nobody explains to agents, and it's the reason I wanted to write this one. During a foreclosure, the payoff does not sit still. It grows. Every single month.

1. Missed payments keep accruing. The homeowner isn't paying, but the loan is still amortizing on paper and every missed payment gets added to the balance owed.

2. Default interest and late charges pile on top. Most notes carry a higher interest rate once the loan is in default, and the late fees are monthly.

3. The servicer advances the taxes and insurance. The mortgage servicer is the company you send your payments to. When there's no payment coming in, they pay the town and the insurance company out of their own pocket to protect the collateral, and every dollar of that gets added to what the homeowner owes.

4. Attorney fees and foreclosure costs. The bank's foreclosure attorney bills the file for every filing, every appearance, every mediation session. Title work, appraisals, property inspections every month to make sure the house is still standing. All of it goes on the payoff.

So then you ask, "how much are we talking about?" It depends on the loan, but I'll give you a made-up round number to make the point. A seller who was $15,000 underwater on the day the lis pendens was recorded is not $15,000 underwater in year three. They may be $50,000 or $60,000 underwater, and the house has had three more years of deferred maintenance on top of it. The gap gets wider the longer it sits.

Why does the bank care about that?

This is the part that makes the whole business work, so pay attention. The banks don't do short sales to help people. They do short sales to help themselves. The investor who actually owns the loan, whether that's Fannie Mae, Freddie Mac, HUD, or a securitized trust, is running one calculation: what do we net if we approve a sale today, versus what do we recover if we carry this thing through four more years of Connecticut foreclosure, pay the attorney the whole way, take the house back, and then sell it as an REO in 2030?

When the answer favors the sale, the file gets approved. When it doesn't, it gets denied. That's it. That's the whole decision, and the 1,626-day timeline is a big thumb on the scale, because every year the bank has to carry a Connecticut file is another year of cost they'd rather not eat. I am not telling you that means your file will be approved. Nobody can tell you that before the valuation is ordered and the net is calculated, and I wrote a whole post last week on why. What I'm telling you is that the incentive exists, it's real, and it's bigger in Connecticut than almost anywhere in the country.

What does this mean for you at the listing appointment?

Put the two numbers together. Filings are down 31 percent, so the public lists are thin. Timelines are four and a half years, so the sellers who ARE in trouble have been in trouble for a long time, quietly, and their payoff has been growing the whole time.

Those sellers are not showing up on a foreclosure list you can buy. They're showing up in front of you. They're the expired listing that never got a price reduction because the price was already at the payoff. They're the relocation seller carrying two payments. They're the divorce where neither side can refinance. They're the estate where nobody has made a mortgage payment since the funeral. The lis pendens might be two years old, or it might not have been filed yet.

So here's the best practice. Ask about the payoff before you price it. Get the mortgage statement, and if there's a second mortgage or a home equity line, get that one too. Ask when the last payment was made. If the payoff plus closing costs is anywhere near the realistic list price, stop and call somebody before you sign the listing, because the standard playbook is going to fail and it's going to fail slowly.

The takeaway

Connecticut's foreclosure numbers are low, and they're going to stay low for a while, and that has nothing to do with whether your seller is in trouble. It has to do with how long the process takes. Fewer filings, longer timelines, bigger payoffs. The problem is still there. It's just quieter.

Send me the address and the approximate payoff. I'll tell you within a day whether it's worth pursuing.

As always, feel free to reach out to me with any questions.

Sean Wilder
Loss Mit Services
860-265-3727
CT Debt Negotiator NMLS #828273
Loss Mit Services is a dba of Accredited Home Services, LLC · CT Debt Negotiation License DN-828273

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