SHORT SALES AND THEIR EFFECT ON YOU, NOW AND IN THE FUTURE

If you are a current homeowner living in an area where there are many “Short Sale” home sales occurring (and foreclosures) this is certainly affecting the value of your Real Estate. The lien holders on a “Short Sale” are agreeing to allow the owners to sell their home for less than what is owed and in many cases for less than current market value. This then drives the market value lower and lower. Until the Foreclosure Sales and Short Sales taper off this is going to continue. Even if a buyer is willing to pay top dollar for a home in your neighborhood, if they are financing the property the appraiser is now struggling to find comparables to justify the price the buyer is willing to pay. If the appraised value falls short of the negotiated sales price the buyer may not be able to procure the loan which forces the seller to re-evaluate his negotiated price to determine whether to sell in today’s market.

If you are a current homeowner that has made the decision to sell your Real Estate in a “Short Sale” scenario here are some things you will want to investigate thoroughly. What is my future debt responsibility? What are my tax implications? How will this affect my credit now and in the future? The internet is truly a gift when it comes to finding answers; let’s look at the credit issue. Based on data compiled by Fair Isaac Corp., which developed FICO scores, and VantageScore, the scoring model used by three of the major credit bureaus – Experian, TransUnion and Equifax – if a lower sales price than outstanding balance was negotiated (Short Sale), but a delinquency was reported it would affect the credit approximately 50-140 points; there will also be an impact on the score depending how many late or non-payments were reported prior to the close of escrow. You could possibly turn around and be able to purchase in as little as 12-18 months (a Fannie Mae or Freddie Mac backed loan is a minimum of 2 years). If the home is foreclosed on the damage is a bit more severe and would affect the credit approximately 150-300 points plus damage of the late or non-payment history already reported. Typically this will affect your purchase power for a minimum of 3 years.

The Distressed Property Institute, LLC reports that Credit History on a Foreclosure will remain as a public record on a person’s credit history for 7 years or more. A Short Sale is not reported on a person’s credit history. There is no specific reporting item for “short sale”. In most cases a loan is typically reported “paid in full, settled” or “paid as negotiated”. For more information on Foreclosure vs. Short Sale regarding future loan potential, credit score, credit history, security clearances, current employment and future employment visit the Certified Distressed Property Expert at www.cdpe.com.