Short Sale Aftershocks: Cleaning Up the Credit

Experiencing a Short Sale or Foreclosure

Home owners have increasingly determined that staying in their homes may no longer be worth the enormous payments  because they owe far more than their homes are worth. In the past two years homes in Southern California have decreased from 20% to 80% of value depending on the locality. Though in some areas, prices seem to have stabilized, many homeowners have become disillusioned by the loan mods offered by their lenders.

What to do? For many, the option is a short sale, either standard or strategic. By taking this option, the homeowner and the bank agree to sell the home for less than is owed. Yes, the homeowner does lose the home, but is now out from under the immense burden of an underwater mortgage.

What is the downside? Besides losing the home, the downside is a strong ding to the homeowner’s credit from mortgage lates and the short sale itself.

Cleaning Up the Credit

Can anything be done to salvage the bad effects of a short sale? The answer is yes and yes. If the homeowner is still making payments while requesting a short sale from the bank, today it is possible for that homeowner to simultaneously purchase another property and close escrows at the same time! This is terrific news. Now, the homeowner can purchase a similar home for sometimes half the price!

What about the more common situation where the homeowner is not making the payments before a short sale? Good news there as well since sometimes that homeowner’s credit can be “cleaned” and the short sale or foreclosure eliminated. This is possible particularly for those who have maintained their other payments, but stopped making only their mortgage payments. Of course, sometimes it’s even possible to help those with stronger dings on their credit as well.

Cleaning up credit after a short sale or foreclosure is not an easy process, but it can be done. Typically, the client must wait for several months after the short sale or foreclosure has occurred and then start the procedure by requesting a copy of the damaged credit report from myannualcreditreport.com. Notice also that if the client has been rejected for credit after a short sale or foreclosure and that is almost a foregone conclusion, he has the right to request a free credit report for up to 60 days after the credit has been refused.

In fact, what can one expect after a short sale or foreclosure? Credit card companies will most likely notice after a month or two and start sending out letters. If the credit card holder has a balance he is paying off, especially a high balance, the credit card company may lower the credit limit to the balance owed. Or, the credit card issuer may summarily close the account with an accompanying letter stating that due to accounts unpaid with other creditors the account is being closed. Again, the card holder has the right to a free credit report.

Now the  credit report, free or otherwise, in hand, the borrower knows the extent of the damage and can start the repair process.

Thinking of doing a short sale? Be sure to call me at 626-641-0346. Or, email me at drdbroker@yahoo.com. I specialize in short sales.

5 thoughts on “Short Sale Aftershocks: Cleaning Up the Credit

  1. The truth is, lenders actually lose more money in foreclosure sales than in short sales but the damage that the foreclosure do to your credit is the same with what short sale can do.

    • Actually, a short sale confers considerably LESS damage on your credit than a foreclosure and the damage is over much faster. A foreclosure stays on your credit for more than y years. That’s a long time.

  2. Pingback: Short Sale Aftershocks: Cleaning Up the Credit « Diane's Blog | Real Estate Investing

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