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Don’t Let a Short Sale Keep You From a New Mortgage

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If you negotiated a short sale of your home, you may be surprised to learn that some mortgage loan underwriting systems can’t distinguish short sales from foreclosures on consumer reports. And that may keep or delay you from getting a new mortgage.

You see, borrowers who go through a foreclosure typically have to wait seven years before they’re eligible for a new mortgage. But short sellers may qualify in as little as two years. When you’re trying to buy a new home, an additional five years can seem like a lifetime. So is there anything you can do to improve your financial footing? You bet there is.

  • Get a letter from your lender confirming that your loan closed in a short sale, not a foreclosure. Send a copy of the letter to each of the nationwide credit reporting companies: Equifax, Experian, and TransUnion.
  • Order a copy of your credit report. Make sure the information is accurate. If you find a mistake, contact the credit reporting company and business providing the information to correct the error.
  • When you’re ready to buy another home, get pre-approved for a loan. A pre-approval letter from a lender shows that you are able to go through with a purchase. Pre-approval is not a final loan commitment; it means you met with a loan officer, your credit report was reviewed, and the lender believes you can qualify for a specific loan amount. This pre-approval process allows your lender to identify issues and errors in your credit report that may keep you from qualifying for a loan. That, in turn, allows you to correct inaccuracies before they can prevent you from buying another home.


It seems to me that foreclosure, short sale, deed in lieu, cash for keys all mean the lender probably lost money so there is a negative connotation – Its my understanding all of those things get reported simply as “foreclosures” on credit reports. is there a new regulation on this? It would be helpful for me to know this since I help people prepare to get a mortgage.

I had a short sale in 2010. The bank was hostile, damaged the property and denied they did so. Later they had to give me $ as the result of a class action suite. It has been 8 years. Yesterday I received a letter from the bank stating that they had failed to report this short sale when it occurred and will be reporting it now. Is this legal? After 7 years, I discarded the paperwork.

You may wan to talk to a legal aid lawyer, another attorney, or your State Attorney General.

I had the same thing with US Bank Home Mortgage. Then they reported foreclosure on my credit report, even though I sold it for what I owed. I received a 85.00 check for a class action lawsuit against them. The broke the main water line in the basement and destroyed the home. I wasn’t able to do anything and 85.00 doesn’t compare to the last 7 years of misery. I stopped paying in October 2014 and looking to remove it from my credit report. Supposedly 7 years after the first missed payment they have to remove it. The banks got bailed out but the customers are still suffering.

There is currently no difference in the waiting time between a short sale and foreclosure until a new mortgage according to our underwriter. Per one of the mortgage lenders here at the University of Michigan Credit Union. Kathryn Greiner

Is there a difference in the way reporting is done by state? I did a 'short sale' on my home back in 2010 and it shows as a completed loan on my credit report. Why is there a difference from state to state, and why are lenders not required to show this status on the reports they file? Considering all the 'issues' with lenders and their bad habits, it would seem that this should be a requirement. My lender was shut down by the FBI for 'ponzi' schemes and the company was shut down. This left my mortgage in limbo for 8 months, during which time my payments were not recorded so it shows that they were not made. This has hurt my credit, and caused numerous problems for me, and led to the 'short sale' of my home when the new 'assigned' lender chose to list me as a foreclosure. Where did my money end up? Anyone's guess at this point.

Both a short sale and a foreclosure will impact your credit score essentially the same- a loss of 100 to 300 points. Still, many say that a foreclosure will hit your credit harder than a short sale with late payments- each seller situation varies. If you have a great credit score when either happen, you will be most affected and take the longest to recover. If you already didn't have a great credit score, you may only suffer a loss of 100 points or so. Someone that has had a short sale can expect to wait at least 2 years for a decent interest rate on an institutional mortgage loan, although negative credit will show on your credit report for 7 years. With foreclosures, it will take at least 5 years, but probably closer to 7 years, to obtain a new mortgage loan. ~Christina, Current Mortgage Rates Today

Banks and lenders have discovered they can get away with about anything. No one goes to jail,
the lender gets off with a slap in the wrist, same with collectors, they get a fine, cost of doing business, then business as the mob usual.

Did I say mob in my last post? Ok I'm sorry I should have said organized crime. Now they are calling the crimes by Chase, Bank America, Wells Fargo and others errors. Try to go into a bank and make an can kiss it all goodby

The problem I am running into with a lot of mortgage applicants is that the new FHA, Fannie Mae Guidelines call for a 0x30 mortgage history on the home that was short-sold, and in reality, most people are not 0x30 on the home before the short sale takes place. This is holding a lot of deals up from closing in my opinion.

So what is a couple who lives Social Security Disability, each one of us,+ one has an extra retirement check from the State of Wa, this is all tax free $$. I also have an annuity from my ex +a good part of his retirement coming when he retires. I have enough in my portfolio to put down a good down payment,I want to be able to put down enough so I can afford the mortgage on my own if necessary. We are also thinking of renting 1st to find out if we like the particular area were living in since it's a new area. We'd like to go after the 12th to look around with a translator, rent w/option is also a possibility although I know I must really find out where the owner is sitting with the mortgage. I guess I want to know if it's too soon to call a realtor,as we'd like to move in Oct. Thank you!

If the FTC truly believes that the lender, in my case, B of A, is ACTUALLY going to send such a letter, they clearly do not live in the same world as I...

For how long can the bank put a blemish on your credit report, and when does the time period begin? I have read that the time period begins with the first delinquent payment. Is that true?

A credit reporting company can report most accurate negative information for seven years and bankruptcy information for 10 years. Information about an unpaid judgment against you can be reported for seven years or until the statute of limitations runs out, whichever is longer. The seven-year reporting period starts from the date the event took place. There is no time limit on reporting information about criminal convictions; information reported in response to your application for a job that pays more than $75,000 a year; and information reported because you’ve applied for more than $150,000 worth of credit or life insurance.

My ex short sold the home that I had quit claimed in our divorce, but my name stayed on the mortgage. Now the short sale shows on my credit report. Was the lender REQUIRED to report it on my credit, or is there some way I might be able to have it removed?

My wife and signed three contracts with Hilton Grand Vacation Club.My wife has died and I can no longer afford the payments. Must I file bankruptcy in order to get out from under? I have found out since she died that the timeshares we bought are worthless. Nobody wants to buy them,like we were told when we bought them. And they won't accept them in they're resale department because the principal has not been paid down enough. I will be able to meet my obligations for two more years then Hilton will have my money. I will have to have to file bankruptcy. I will have nothing. I know I should have thought about making the payments without my wife's income but their salesmen are very reassuring that their resale department could take care of everything if I should die and my wife was left holding the bag. Hilton has been no help.They told me to sell it to family. I don't think so.Sell it on the open market. It's worthless. Default on my loan and suffer the consequences. I may have to take their last suggestion since they won't release me from my obligations. Does anybody have any suggestions?

You may want to talk with a real estate lawyer.

This FTC article has information about what to consider before you work with a company that offers to resell your timeshare.

We had a short sale that finalized in Dec 2009, but we also had another home that we have paid the mortgage from 2007 until we sold it in 2015 and we NEVER missed a payment. We don't owe any debt, can we purchase a new home this year? (2016)

The blog lists some steps you can take if you want to buy a home after a short sale.

Love your program and your article.

Fantastic Blog! Thank you so much for sharing, really nice blog, appreciate to blogger for wonderful sharing.

I had a short sale nine years ago on my house and the bank is now coming after me to pay the difference the short sale price and what the bank says was owed. Do I have to pay this difference now nine years later?

This is a contractual issue – it depends on the agreement with the bank (or other mortgage lender). For example, did the bank agree to accept the short sale as full satisfaction of the debt and waive or give up its right to seek a deficiency judgment, putting that into the agreement?  Some lenders may still agree to accept a lesser amount in satisfaction of the debt, but this could depend on the situation. Some states may have laws that protect homeowners in this situation; you may want to ask your state attorney general’s office for more information.

My lender has offered a Deed-In-Lieu settlement on my home in Texas. What are the ramifications of such on Credit Reports? Are there any actions I should take , e.g. a letter from lender noting that the loan is settled in full, etc.

Please talk with a lawyer or real estate professional about that.

Use this state-by-state list from the American Bar Association to find a private lawyer in your state. It also has information about your state court system and explains what you can do on your own.

The State Bar Associations website is another resource. Use the State Bar Associations list to find the bar association in your county, and call them to ask about finding a lawyer.

We did a short sale on our house we closed on it the closing the morgage co.gave us a check for 10,000 will the still come after us for the difference?

You may need to consult a lawyer or tax professional about that.

I had a foreclosure on my home two years ago. Last year I filed a bankruptcy Chapter 7. I'm now trying to apply for a reverse mortgage on the home I purchased after foreclosure. Lender tells me that I have to wait 3 years after FHA paid off the lender but I have special circumstances on the mortgage default. The reverse mtg. lender tells me that I still have an active FHA case # that should have been closed out at the time of foreclosure. How do I get this FHA case number removed from my name? Thanks,

That sounds like a question to ask the FHA.

We had a short sale of a rental property investment a few years back. We are now trying to refinance/or take out 2nd loan on our main residence (100,000+ in equity). Mortgage company told us we can not refi until that short sale is taken off our credit report. They said they can refi after 4 years from time of short sale. Any thing we can do to get it off our report or any other options? Thanks!

I short sold my house and had an agreement. I paid off the agreement and they sent me a letter saying I paid the amount but not that the agreement was paid off. how long can they keep hitting my credit and how do I get it off my credit?

You can file a complaint about a financial company or service with the Consumer Financial Protection Bureau.

I did a short sale 4 months ago, how long do I need to wait to buy a new house.

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