It’s estimated that almost 1.5 million homeowners have gone through a short sale in the last 5 years, yet many of those are reporting incorrectly on their credit reports as foreclosures. The difference between a short sale or a foreclosure reported on a credit report can cost a borrower valuable time, money, and delay their entry back into the housing market.
How prevalent is the problem? Well consider that here in the Sacramento area more than 1 in 3 homes that sold in those 5 years were short sales, the number of former homeowners trying to rebuild their credit is gigantic. In 2012 alone, short sales accounted for 32% of all sales, while foreclosures declined to 11%, according to the California Association of Realtors.
Now, with glowing signs of optimism in the housing market, many former homeowners are rebuilding their finances and looking to purchase a home again. Ready to take advantage of lower prices and historically-low interest rates, they’re running into an unexpected obstacle, even when their financial situation is strong: the short sale misreporting as a foreclosure on their credit report.
What it means to the borrower:
A foreclosure and short sale have the same approximate negative affect on credit score, knocking a defaulter down 80-165 points. However, the real difference is that someone who short sells a home will be eligible to purchase again in 1-3 years depending on the loan program and if there was a clear, documented hardship. With a foreclosure someone will not be eligible for a home loan for 3-7 years depending on the loan program.
So the benefit to short selling a home is profound, but still the lenders commonly misreport the negative event on the credit report, and consumers accept the misreporting, not realizing they have recourse to correct it. In the real-time context of a former homeowner trying to get back in the market, a delay of a few years may mean that they are going to pay more for their home in this market of low inventory and high competition, and certainly interest rates have no where to go but up from their historic lows. If their credit score doesn’t rebound from the incorrect reporting of a foreclosure, they will either pay more for a house or have to take on a higher interest rate, which could cost them tens or even hundreds of thousands of dollars over the life of the loan. Even worse, some short sellers are disheartened by the foreclosure on their credit report, and give up the dream of home ownership all together.
The good news is that a consumer does have a procedure to fix this problem, and Blue Water Credit can help hold the credit bureaus accountable to report the short sale accurately, readying you for that next home purchase.
So what happens next, and how can Blue Water Credit help?
When a short sale closes, the credit trade line reports as “settled for less than full balance, or charge off,” on the borrowers’ credit report, which is accurate. But there is help to get it clarified as a short sale, not a foreclosure. Here are some things to consider during this process:
1. Realize that this situation is happening with virtually every lender we come in contact with.
2. Blue Water Credit is currently receiving an average of 3 clients a week that need help with this very issue.
3. Once a client hires Blue Water Credit, we will basically start the first leg of a “law suit” against the credit provider that’s misreporting the MOP code.
What results can you expect?
1. About 50% of the time BWC is able to get it fixed and corrected in 45 days and 80% of the time BWC can resolve this issue in 90 days time.
2.Another 30% of the time approximately it gets fixed within 90 days (so basically it’s an 80% success record but can take up to 90 days).
3. If the issue is still not resolved then the next step would be to sue the bank and or credit provider. If they were to win the lawsuit, the credit provider would a) fix the MOP code and b) reimburse client attorney fees.
If you went through a short sale and are looking to buy again, but a foreclosure on your credit report is holding you back, there is hope, and a very clear procedure to challenge the misreporting. By doing this and rebuilding your credit score you can qualify for a home loan again, and benefit from this exciting real estate market.
Please contact Blue Water Credit if you have any more questions or need further help – we’re happy to offer you a complimentary consultation.
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