Short sales were once a rare instance in the housing market, with the credit agencies unsure of how these types of sales really affected lenders, creditors, and the owners.
Recent research by the Fair Isaac Corporation (FICO) show that most homeowners in short sale default on at least one other credit item. Due to these new insights and research following the most recent economic downturn, short sales have become disaster for some homeowners underwater on their mortgages.
In some cases where there is no deficient balance, the credit score may only be affected by 50-100 points depending on credit agencies. However, most short sales are treated the same, in terms of credit, as foreclosures. This can affect the credit ratings from 100-160 points! It can take anywhere from three to seven years to have the impact of a short sale removed from your credit score.
The basic conclusion of this research states that the higher your credit rating and attention to other credit items, the less likely your credit score will be affected so severely. In some instances the lender will agree to report the sale as “paid” which will leave little to no trace on the credit score. However more typical transactions record a short sale as a “settled” account, meaning a deficient amount was agreed upon by both parties.
Research on how short sales, late mortgage payments, foreclosure and bankruptcy are treated by credit agencies may be obtained from FICO Banking Analytic Blog 2011.
There are alternatives to short sales for homeowners who are underwater on their mortgage, meaning that they owe more than they can get from the sale of their property in today's market. I often use a lease-option technique to purchase the house with no or little out-of-pocket expense from the seller. To find out more, please message me privately at HomeLandInvestment@gmail.com or call 206-355-1706, for a confidential consultation.