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Foreclosure Vs. Short Sale
Foreclosure vs. Short Sale
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Credit Score
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A foreclosure will show up as a public record on your credit report, the same as a bankruptcy will show. The impact of a foreclosure can be anywhere from 200 to over 300 points. The foreclosure with typically will affect score for a minimum of 3 years and will report for 7 to 10 years.
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With a short sale, only late payments on mortgage will show on your credit report. Once the short sale is completed, it will be reported as “settled for less than full amount due” (or similar verbiage). Depending on the number of other trade lines you have, balances on credit card accounts and if everything else is kept current, the impact can be as little as 50 points. A short sale’s affect can be a brief as 12 to 18 months.
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Credit History
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Along with the late payments, the foreclosure will remain as a public record your credit history for 7 to 10 years.
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Only the late payments will be reported on your credit. The short sale will appear the same as a charge off on a credit card and will be reported as “settled for less than full amount due” (or similar verbiage).
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Future Home Purchase (Primary Residence - Fannie Mae Loan)(effective May 21, 2008)
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Any individual that looses their property to foreclosure will not be eligible for a Fannie Mae backed mortgage for a period of 5 years.
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Any individual that successfully completes a short sale will be eligible for a Fannie Mae backed mortgage after only 2 years.
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Future Home Purchase (Non Primary Residence - Fannie Mae Loan) (effective May 21, 2008)
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Any investor that looses their property to foreclosure will not be eligible for a Fannie Mae backed mortgage for a period of 7 years.
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Any investor that successfully completes a short sale will be eligible for a Fannie Mae backed mortgage after only 2 years.
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Future Loan with any
Mortgage Company
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On any future loan application that is completed, the prospective borrower will need to answer YES to question C in Section VIII of the standard 1003 that asks “Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?” this may affect future rates after the 5-7 waiting period.
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There currently are not any questions related to a short sale on the loan application.
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Deficiency Rights
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In California, many loans give the lender the right to pursue the
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During the short sale negotiations, in most cases we are able to have the lender agree in writing to
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Documents Needed For A Short Sale
Our team provides you with an easy to complete, step by step short sale packet, delivered to your door. Included in the packet is a self addressed pre stamped envelope for you to return the completed documents.
These documents include:
1. 2 Most Recent Bank Statements.
2. Lender & Loan Numbers (provide statements if you have them).
3. 2 Most Current Pay Stubs (If you are self employed, please write a letter stating that you are self employed. If you are unemployed, please provide an unemployment pay stub or any paperwork that you have stating that you are currently not employed)
4. 2 Most Current Federal Tax Returns (2007 & 2008 or 2006 & 2007 ).
5. Current Home Owners Association Statement (If applicable).
6. Hardship Letter (Samples provided in packet)
Your Credit Score After A Short Sale
The Credit Restoration Model
After a Short Sale; or, a Bankruptcy.
Selling a property “Short” and relieving yourself of the burden of paying on a non-performing asset, which in all likelihood will continue to decline for the foreseeable future, is one of the shrewdest business decisions you can make. Contrary to popular belief there is no direct negative impact to your credit score because of a short sale. The impact to your credit score is derived from the late mortgage payments that usually accompany the short sale process. Late payments of any kind: mortgage, credit card or auto loans are all treated equally. A late payment of any type only affects your credit for 24 months; with the impact lessening after just 12 months. This 24 month period is dependent on all your payments being paid on time after the short sale is completed or the bankruptcy is discharged. Following this model will have your risk score right back up into the 700’s in just 24 months.
This is also the credit restoration model for those who filed a bankruptcy. A bankruptcy is the legal right to fail, with the ability to move forward again, without the burden of unsecured creditors. A bankruptcy is not the dooming and damning experience that most people are led to believe that it is by the government, lenders and other creditors. Many businessmen have emerged from bankruptcy to start over and create dozens, if not hundreds, of new jobs. Remember the old saying “If it doesn’t kill ya it’ll make you stronger.” Nobody’s ever died from bankruptcy.
Some notable people who have emerged from bankruptcy and gone on to do god and great things are: Larry King (twice), Walt Disney, Donald Trump, Peggy Flemming, Kim Basinger, Henry Ford, Rembrandt, Joe Conseco, Henry Heinz (ketchup), Mark Twain, Abraham Lincoln (twice) and hundreds of others. Consequently, if you’re thinking of filing a bankruptcy you’re in good company.
There are 3 simple steps to credit restoration and the result will be a risk score in the mid 700’s within 24 months. This is an adaption of the Wells Fargo Credit Restoration model modified, and improved, by what I’ve learned from my clients to get the maximum results.
Make sure that your home was indeed sold short, and not foreclosed upon. The difference is that foreclosure assumes that you lost control of the house and surrendered the property to the lender, and short selling assumes the lender took a dollar amount less than the outstanding balance of the loan. Foreclosure will prevent you from buying another home for at least five years, but it can be cut significantly shorter if you sold the home short.
Step 1.
- Open two new secured credit cards. This will require a deposit with the bank issuing the credit card that will be equal to your credit card limit. A $500 deposit will have a $500 limit; however, the deposit is NOT used to make the payments. It is additional security for the bank that the payments will be made. You will still be obligated to make your monthly minimum payments. I suggest that whatever amount you open the cards with don’t EVER charge more than 35% of your limit for the first 24 months. Be sure to USE the cards, and MAKE the monthly payments ON TIME!
DO NOT OPEN THESE ACCOUNTS UNTIL AFTER THE SHORT SALE OR BANKRUPTCY IS COMPLETE!
Step 2
- Buy something on an installment loan. A car, motorcycle, jet ski, couch, a piece of art, anything; but it has to be paid in equal installments over at least the 2 year restoration period.
DO NOT PAY IT OFF UNTIL AFTER 24 MONTHS HAVE PASSED!
Step 3
- Make ALL your payments on time: this is absolutely critical!
Follow this restoration model and your FICO scores
will be in the 700’s in just 24 short months!
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