Participating in either a short sale or a foreclosure is never a fun ordeal, but when it comes down to it to have a short sale on your record as opposed to a foreclosure you look much better on paper—consider it a ‘resume booster’ for your credit report. Also, those with short sales are welcomed back into the housing market much faster than those with foreclosures. Some borrowers with a short sale can be welcomed back into the market in as quick as no time at all, if it is an FHA loan and “given that the borrower did not default on the prior mortgage at the time of the short sale, and all of the other payments on the previous loan (as well as other debt payments) were on time for 12 months before the date of the short sale, as long as it does not appear that the borrower was taking advantage of the mortgage market and attempting to purchase the same kind/size of home in the same proximity of the home that was short sold” as told in my previous article regarding short sales, entitled “Homeownership After a Short Sale”. However, short sales are frequently mistakenly recorded on the borrowers’ credit report as a foreclosure.
A foreclosure on the credit report instead of a short sale can set credit scores back farther and also may exile that borrower out of the housing marketing for much longer than they would with a short sale – seven years. A short sale merely damages credit scores, while foreclosures butcher them. The reason for this misrepresentation on the credit report is that the mortgage industry does not have a separate reporting code for short sales, which leads us all to the question, why not? Senator Bill Nelson recently brought attention to the subject and made it the center of a federal investigation as to why the separate code ceases to exist.
ABC Action News reported that Fannie Mae recognized that they “cannot identify short sales on the credit report data”. With this being the case, the next step was to hit up the credit reporting agencies. Experian credit reporting agency stated, “the shorts sales and foreclosures are being coded correctly on Experian’s credit reports. Where we have found the discrepancies occurring is in the underwriting process”. As 2.2 million people opted for short sales since the crash of the housing market, and with all of the agencies placing the blame on the next guy, homeowner’s need to take matters into their own hands if they ever want to buy in the near future. This should not only be said for home buying, either. The amount of damage that the foreclosure has on the credit score can severely hinder the borrower from obtaining a fair car loan or making other large purchases without being subject to astronomical interest rates and unfair terms. Borrowers need to demand a letter from their lender stating that it was a short sale, and any markings of foreclosure should be deleted immediately. We can’t make any promises that it will be smooth sailing from there forth, but the key is to follow up with your new lender with regards to the matter as much as humanly possible to the point that they know they must tend to your file. Homeownership is our right as Americans, but as much of a nuisance as it is, there are times when we have to be very proactive to attain our goals.