The affect on your credit from foreclosures, short sales and deed-in-lieus

[Moe]

• Foreclosure or Deed-in-Lieu of Foreclosure
  Both of these solutions affect credit the same. Sellers will take a hit of 250 to 280 points. This means if a seller's FICO score before foreclosure was 680, it could dip as low as 400.
• Short Sale
  The affect of a short sale on a seller's credit report is much less damaging. The ding on credit will show up as a pre-foreclosure in redemption status, Steep says, which will result in a loss of 80 to 100 points. This means a short sale with a previous FICO of 680 will see it fall to 580 to 600.

Waiting Period Before Buying Another Home

• Foreclosure or Deed-in-Lieu of Foreclosure
  Steep says a seller who wants to buy another home after foreclosure will end up waiting about 36 months before a lender will offer any kind of interest rate that makes sense.
• Short Sale
  The good news for short sale sellers is the wait is much shorter before buying another home. "They can buy again in about 18 months at a good interest rate," says Steep.

Short Sale / Foreclosure Deficiency Judgments


The bad news is a seller could be subject to a deficiency judgment for the difference between the loan amount and the amount paid. In California, purchase money loans are not subject to deficiency judgments; however, hard money loans, equity loans and refinances are. Other states have laws regarding personal guarantees, which could also result in a deficiency judgment if the home owner is personally liable for loan repayment.

The lender has sole discretion whether to pursue a deficiency judgment in those instances when the judgment is permitted. To determine whether a pending foreclosure or short sale is subject to a deficiency judgment, talk to a real estate lawyer.
If you're a seller trying to decide whether to let a home go through foreclosure versus attempting a short sale, salvaging your credit is the main advantage to doing a short sale. But seek legal and tax advice before making that decision.

Source http://homebuying.about.com/od/4clos...07SScredit.htm

[elpjohnson]

Thanks, Moe for the info!

[hollywood007]

Since when has a deen in lieu been as bad as a forclosure. apples to apples wise?????
not to be rude in anyway. When i was doing loans full time, there were programs that someone could qualify for as long as it didnt say "forclosure"

just curious,
great post by the way Moe

[Moe]

Because the implications to your credit (negaitve points) is about the same as a full on foreclosure. It's all based on risk and a deed in lieu is considered someone who is risky to loan to. No ifs ands or butts about it.

This is how Fannie Mae looks at it in detail (courtesy of Poppy)

Prior bankruptcy or foreclosure(including deed-in-lieu of foreclosure) Identification of bankruptcies in the credit report:

DU applies the following guidelines to the processing of bankruptcies:

•If a bankruptcy was filed within the 24-month period prior to the credit report date, the loan will receive a Refer W Caution/IV and will be ineligible for delivery to Fannie Mae.

•If the date filed is unknown but it appears that the bankruptcy was discharged within 24 months, then DU will return a Refer recommendation if the loan would have otherwise received an Approve recommendation. The lender must confirm that the bankruptcy was not filed within the most recent 24-month period.

•If a bankruptcy was filed more than 24 months before the credit report date, the lender must confirm that the bankruptcy was discharged at the time of the loan application. (This applies to all recommendations.)


•DU will ignore tradeline accounts that are reported with a bankruptcy status code or manner of payment/MOP code of "7" if there is at least one bankruptcy reported in a public record. In this scenario, we are assuming that the date filed and the date discharged in the public record are more accurate than the dates in the tradeline, i.e., specific filed and discharged dates do not exist in the tradeline.

•If the bankruptcy is not reported in a public record, but a tradeline is reported with a bankruptcy status code, then the lender will need to verify the actual filed and discharged dates to determine that the bankruptcy meets the 24-month requirement for DU loans.

Identification of foreclosures(including deeds-in-lieu of foreclosure) in the credit report:

DU applies the following guidelines to the processing of foreclosures:

•Mortgage accounts, including first liens, second liens, home improvement loans, HELOCs, and mobile home loans, will be identified as a foreclosure if there is a current status or manner of payment/MOP code of "8" – foreclosure, or "9" – collection or chargeoff.

•If a foreclosure was reported within the 24-month period prior to the credit report date, the loan casefile will receive a Refer W Caution/IV and will be ineligible for delivery to Fannie Mae.

•If the filed date and the satisfied date of the foreclosure are both unknown, but it appears that the foreclosure occurred within the 24 month period prior to the credit report date, then DU will return a Refer recommendation if the loan would have otherwise received an Approve recommendation. The lender must confirm that the foreclosure did not occur within the most recent 24-month period.

•If a foreclosure was reported more than 24 months before the credit report date, the existence of the foreclosure is acceptable provided there are no additional eligibility criteria applied to the loan.

•Foreclosure laws vary by state and the time it takes to complete the process may vary by state. DU assumes that the date the foreclosurewas reported in the tradeline is the date of the foreclosure sale or liquidation. The lender must confirm that all foreclosures are satisfied.

[Mary Salzer]

FHA - 36 months...Foreclosure or Deed in Lieu of Foreclosure, only allowed to shorten the time to 24 months if extremely, extremely compelling extenuating circumstances. Divorce, inability to sell home due to relocation, etc...not allowed. Death of Wage earner, Loss of Industry/Jobs to entire region, Extreme Illness - allowed.

[hollywood007]

very good post. good material.
that does make sense and makes it more clear as to why some people got approved and others didnt...
thanks

[shannonek]

Moe,

Is there any adverse credit rating for a loan modification????
Haven't gotten it yet, but I am very optimistic!

[Andrew]

That is a very good question. From what I hear there is no negative reporting on your credit reports. But technically they could put a comment on there since you are not abiding by your contract. I run 100's of credit reports a day in my line of work and see all different types of comments on trade lines. I guess it's really up to the creditor on whether they want to put a comment or not.

[aifanejr]

Is it true that a short sale with no missed payments is less damage to your credit score than missing a payment (with no short sale)?

[03penny]

I would think so under the way the scores are done now. One great resource that I have used and recommended for how things impact your credit score is myfico.com. You can actually run scenarios through this and it will tell you what your score will be and what it will be in the next few months. These are the people that make the score. It is much more accurate than any of the other score simulator services.

[Mary Salzer]

Yes the Short Sale will not impact your credit in the fashion that a Foreclosure or Deed in Lieu would impact your credit...if you keep the mortgage current during the process it is a very light ding to the credit in the scheme of things. Be aware that it will impact the score, but by no means to the degree that Foreclosure or Deed in Lieu.

Also you would be far more eligible for another property purchase a lot faster than with the Foreclosure or Deed in Lieu scenario.