Short Sales and FICO Scores

Real Estate Agent with RE/MAX Affiliates

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I just read an interesting post on this topic, and thought I'd share some of it with you.  It details some of the things homeowners can do to help mitigate the damage done to your credit scores after a short sale.

"The short sale can be reported as a foreclosure but more often it is reported as "paid - settled". This is a definite ding on your credit, but not a severe one compared to multiple delinquencies, charge-offs, foreclosure or bankruptcy. It is a very good idea to do a short sale as compared to running out of savings and ruining your life just to maintain 50 points on a credit score, at least that is how I see it.

It is also possible for the bank simply to remove derogatory reporting. They may say they can't remove something but in fact they can.

Or, they can substitute "unrated", which is neither good nor bad. Unrated as an alternative to "paid - settled" is a great outcome but even if you can't get the bank to agree to this, it is still important to try.

Then there is another move. You can write a letter to the bank demanding this as part of the conditions for the short sale, and then continue with the short sale and complete it. That way you can then challenge the derogatory credit report afterwards and you have a shot at getting it removed based upon your letter. The bank may not have the appetite or staff to handle the challenge, and depending upon your state laws, they may have to remove the derogatory report anywhere from 10 to 30 days later."

As you can see, there are ways to combat the negative reporting.  Remember, the entire short sale process is a negotiation.  The bank does not have to accept your offer if it's short.   They make a strategic decision about which outcome (short sale vs. foreclosing) is in their best interest.  In many cases, they'd rather not carry the property as an REO, and will agree to a short sale.  Knowing that you have a bargaining chip in that they don't want the house, you can request things in how you'd like the transaction reported to the credit bureaus.

For the full article quoted above, please click here.

Posted by


Nick Dailey (CDPE) - Short Sale & Investment Specialist - Northern Kentucky & Greater Cincinnati

Helping families in Northern Kentucky avoid foreclosure.  Northern Kentucky MLS listings of homes for sale.  


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Bill Gillhespy
16 Sunview Blvd - Fort Myers Beach, FL
Fort Myers Beach Realtor, Fort Myers Beach Agent - Homes & Condos

Hi Nick,  Important for folks to remember that each case is handled differently and may have widely differing outcomes.  True, the banks really arn't very good at this process.

Jul 10, 2008 05:15 AM #1
Wendy Smith
Wendy Smith Real Estate - Clearwater, FL
Real Estate Advisor

it's the late payments, not the short sale, that damages the credit report most

as a matter of fact, I'm working on a couple of short sales where the borrower is current - his FICO is close to 800 so the short sale will be a mere hiccup on his credit report

Jul 22, 2008 12:41 PM #2
Heather Fitzgerald
REALTY WORLD-Harbert Company, Inc. - Greenwood, IN
REALTOR Greenwood Indiana Real Estate

Have you actually tried this on a Short Sale and then seen the fruition of this with the client after the closing?

Jul 22, 2008 02:24 PM #3
Nick Dailey
RE/MAX Affiliates - Union, KY
RE/MAX: Northern Kentucky Real Estate - NKY MLS - Short Sale


Jul 30, 2008 02:13 PM #4
Heather Fitzgerald
REALTY WORLD-Harbert Company, Inc. - Greenwood, IN
REALTOR Greenwood Indiana Real Estate

Thanks for sharing this information, everything we can get info wiseon short sales to protect our clients is great.

Jul 31, 2008 01:51 AM #5
John Kim
Property Services & Short Sale TC - Irvine, CA

Always good for people to know.... tks.  Credit is the borrower's biggest concern during these troubled times.

Aug 12, 2008 12:49 PM #6
Patty Da Silva, Davie, Southwest Ranches Cooper City, Plantation, Weston, REALTOR
BROKER of Green Realty Properties® - 954-667-7253 - Davie, FL
Top Listing Broker

"The short sale can be reported as a foreclosure but more often it.."

I could not disagree more with the statement above. A foreclosure is a public record, recorded at the county Clerk's office, searchable and verifiable by anyone.

If the lender reports a foreclosure where a foreclosure did not happen, the customer will have no problem getting the credit bureaus to remove the item.


Patty Da Silva, CDPE©


Aug 12, 2008 01:27 PM #7
Gita Bantwal
RE/MAX Centre Realtors - Warwick, PA
REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel

Thanks for the post. I hope consumers read it.

Oct 03, 2008 01:55 AM #8
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Nick Dailey

RE/MAX: Northern Kentucky Real Estate - NKY MLS - Short Sale
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