I have had a couple of people over the past few months mention that they may consider a short sale, so that they can just get out from under their homes and move on. While the ramifications of a short sale or foreclosure seem to be getting slightly more lenient in light of all of the predatory lending that has occurred in the past several years, they are still significant.
Here are some general credit score ranges (as provided by the National Association of Realtors CRS Course 111);
- 990: highest calculable credit score.
- 900: 15% of borrowers have a credit score at 990 or above.
- 740: a rough number around which people are usually able to get a good, competitive loan.
- 680: the average credit score.
- 501: lowest calculable score.
- 500: 18% of people have a credit score of 500 or below.
Let’s imagine that you have a credit score of 740 and own your home, but are having trouble making your payments (which may actually be causing your credit score to drop in the meantime). Here are a couple of different options, and their effects;
- A loan modification is said to have no negative impact on credit score.
- A short sale is estimated to impact your credit score between 120-130 points.
- A strategic default will likely impact your score by 140-150 points.
- A foreclosure is said to impact your score by 200+ points.
- Filing bankruptcy is likely to impact your credit score negatively by 355-365 points, putting even most prime borrowers below a score of 500. We are being told that it is still remaining on credit scores for up to 10 years.
Another crucial point to remember is that Virginia is a recourse state, which means that a short sale or foreclosure debt that is not forgiven by the bank, can be pursued later. This may result in credit collectors calling on you for years to come, to collect any remaining debt owed.
Let’s do what we can to help you avoid either of these results if possible. A really interesting fact to be aware of; According to the 11/03/09 issue of USA Today, only 9% of eligible homeowners have had their mortgage modified. There may be better options for you than a short sale or a foreclosure.
**Disclaimer: I am a licensed real estate agent and cannot provide legal consulting or tax advice. For counsel on either of these things, please consult your tax accountant or attorney.
Before making any decision to pursue a short sale, a foreclosure, a strategic default, or to file for bankruptcy, it is in your best interest to consult with a licensed Realtor, your tax accountant, and an attorney.