Recently we have been receiving a number of phone calls from would be buyers that feel they can buy a home right away because their agents falsely advised them that no damage was done to their credit. This blog post was precipitated by those direct consumer inquiries.
I don't think this should come to a surprise to anyone in the real estate industry. I real a lot of Blogs and real estate ads where agents are making pretty much false claims that 'Short Sales' are not "foreclosures" but they are. "Avoid foreclosure" claims may just be a half-truth. The fact of the mattter is that short sales are just a less litigious and formal foreclosure process. "Jingle keys" or "deed in lieu of foreclosures" basically damage the owners credit for some time to come. It is a pre-emptive turning the keys over to the bank or trying to force a lender to accept less than what was agreed upon for repayment of the loan. It is a deficiency and avoidance in principle and interest owed. Real estate agents in Georgia are reminded that under state law that advising a homeowners of the tax and the consequences of a short sale is basically left to lawyers and their clients. A real estate agent may be accused of the unlawful practice of law. The best advice for anyone considering a short sale is seek legal council first and know how the process will effect you.
I recently spoke to several individuals about the consequences of a short sale and Lisa Talbot a loan officer in Roswell GA affilliated with Wells Fargo shared this with me:
"Short sales are seen as a type of foreclosure. The direct implications are still evolving but we are being told that foreclosures, including short sales, could eventually end up staying on credit reports for as long as 10 years. That is yet to be determined. The rules are constantly changing and what we know is the rule today will not necessarily be the rule for tomorrow. The only exception to the foreclosure and short sale implications would be a life changing event, typically a one time occurence as in the death of a spouse or a devastating medical condition." Lisa Talbot Suntrust Mortgage
Fair Isaac, the company that compiles credit scores imply that A foreclosure and short sale inflict equal damage to your FICO score. In their eyes there is not difference between the two. Other than documented extenuating circumstances (illness or death of a wager earner etc) either process will make the borrower inelgible for 3 years for a mortgage insured by the Federal Housing Administration. Either a foreclsoure or a short sale may limit the borrowers ability to purchase a home in the future.