It is probably safe to assume that most
consumers like to work with folks they know can be trusted. In Real Estate,
like some other businesses there are those that can always be counted on for
delivering great advice and others that only care about their own pocket book.
I always tell people some of the best
Real Estate agents are those that don’t NEED to make a sale! It makes perfect
sense because an agent that NEEDS business is far more likely to tell a buyer
or seller something they want to hear rather than the truth.
Short sales unfortunately are a
specialized Real Estate transaction where information is often times bandied
about with no basis of fact. Many Realtors blindly go around telling people in
financial distress that a short sale is better for their financial future
because their credit score will not be impacted like going through a
foreclosure.
Folks this could not be further from
the truth! While there are certainly advantages of pursuing a short sale vs
foreclosure, credit scoring is NOT one of them. There will be plenty of
Realtors that will read this and argue with me telling me I am wrong.
As a Realtor who is tech savvy and
social media connected you will see many of my articles in places such as
Linkedin, Twitter and other Real Estate forums.
They will see some of my short sale
articles and flat out tell me that I have incorrect information. When I mention
the credit scoring impact of a short sale compared to a foreclosure is just
about the same they scowl in disbelief. They will tell me I don’t know what I
am talking about because they just learned differently at some short sale
course their local Real Estate board was putting on. At this point I will be
laughing because the people that teach these courses are usually Realtors that
couldn’t make it in the business. They teach this nonsense because it is
propaganda that helps get Realtors more business.
By now you are probably thinking how do
I know the credit scoring impact is similar in these two financially stressful
events. You have every right to be wondering! I know because I go right to the source.
My FICO is the governing body for credit scoring including what happens in both
a short sale and foreclosure.
Short
sale vs foreclosure credit scoring impacts
Since I am often getting challenged on
the credit scoring impacts by other Realtors and get asked all the time by my
clients, I am going to share a very interesting study that was conducted by
Fair Issac corporation.
The FICO study took various types of mortgage
delinquencies on three credit bureau profiles of consumers that had scores of
680, 720 and 780, respectively. The study focused on consumers whose credit
characteristics (e.g., utilization, delinquency history, age of file) were
typical of the three score points considered. All of the consumers had an
active currently-paid-as-agreed mortgage on file.
Results of this credit scoring study
are shown below. The first chart shows the impact on the credit score for each
stage of delinquency and the second shows how long it takes the score to fully
“recover” after the fact including a short sale or foreclosure.
What
you can easily see by this study is that there is a negligible difference
in credit scoring when comparing a foreclosure or short sale. While it seems unfair, those that had a higher credit score
to start will see a greater scoring drop. In addition, the higher starting
score, the longer it takes for the score to fully recover.
While there is a minimal difference in
scoring impact between moderate and severe delinquencies, there may be a
significant difference in time required for the score to recover completely.
These statistics are right from the
guys that make credit scoring. They are not opinions. This is actual data that
was put together and sourced by FICO themselves.
Benefits
of a short sale vs foreclosure
So what are the benefits of going
through a short sale rather than letting a lender foreclose on your property?
The biggest advantage is that you will be able to buy another home in the
future a lot quicker than you would with a foreclosure. Generally speaking the
turnaround time for getting another loan after completing a short sale is two
to three years. In a foreclosure it is typically five to seven years. There are
a number of circumstances that can affect the time frame including whether the
loan is FHA, Fannie Mae or Freddie Mac. For a complete financing guide see buying a home after short sale or foreclosure.
One of the other big factors you need
to consider is your employment status. There are a number of large companies
that will not hire a new employee that has a foreclosure on their resume. While
this may not seem fair with all the financial turmoil that has taken place over
the last five years, employers look at a foreclosure as a black mark on your
record. In other words when you short sale a property you are owing up to a
financial commitment. In a foreclosure you are walking away and taking no
responsibility for your debt.
The last reason why more and more will
choose a short sale over a foreclosure is just the sheer embarrassment of going
through a foreclosure proceeding. In some states an auction is held right on
the front lawn of the property. Who wants to lose their home and then have salt
rubbed in the wound by watching a bunch of buyers compete over it. This is an
unsettling experience for most.
The goal of almost anyone that goes
through a short sale or foreclosure will be to improve their financial
stability moving forward. Of course improving the impact a short sale or
foreclosure had on their credit scores will typically be one of the first areas
that people look at once they are back on their feet. There are certain things
you can do to help fix your finances after a short sale or foreclosure
that are covered in this helpful article.
Unfortunately, sometimes people just
don’t realize they have options and just lose their home to foreclosure. Many
have never taken the time to do any research and just assume there are no
alternatives. A short sale can be a great alternative for some home owners –
best of luck if you are one of them!
Short sales are difficult transactions
that are critical to have the right Realtor representing you. Do not make the
mistake of picking a Real Estate agent that does not have experience closing
short sale transactions.
MacIntyre & Cowen, Short Sale Specialists, RE/MAX
Real Estate Professionals Grand River, can help you navigate this process and
get your home sold. With the extension
of the Mortgage Debt Relief Act until the end of 2013, now is the time to act
if you are underwater in your home. We
would gladly provide a complimentary Over-the-Net Home Evaluation or email
alerts to Hot Buys / Foreclosed / Liquidation & Luxury Distressed
Properties in the Mid Michigan areas including Greater Lansing, Haslett,
Okemos, East Lansing, Grand Ledge, Holt, Williamston, Mason, Eaton Rapids, Dimondale,
Dewitt areas and more. Feel free to
contact us at 517.999.2675 or visit us at www.pmachomes.com today!
Article courtesy of
Bill Gassett. The above Real Estate information on Credit scoring
impacts of short sale vs foreclosure was provided by Bill Gassett, a
Nationally recognized leader in his field.
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