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Short Sale or Deed in Lieu and the Impact to your Credit

Many people have no clue what happens or if anything happens to their credit when they complete a short sale. Truth is, many people just don’t know however, some really great articles are out there about this very topic and yet, so many questions still exist.

The first article I want to draw your attention to is notably an older article however, based on all the chatter I hear on a daily basis about how a deed in lieu or short sale will impact your credit, I really think this article should be revisited.

As published in the Washington Post 8/30/2011 by Michelle Singletary she stresses the fact the actual credit score it’s self, also known as the FICO score may be impacted differently by a short sale or deed in lieu however, that impact is so marginally different that, claims a short sale is less negatively impactful than a deed in lieu seem a bit farfetched, when strictly referring to impact of the FICO score. If you want to read her article yourself, click here.

A 2nd article I think you should read is by Linda Ferrari on 6/9/2009 on her blog, Linda Ferrari Your Credit Score Expert. She wrote an article titled The Mortgage Crisis and Your Credit Part Three: Deed in Lieu of For.... This article is really good from the stand point about how your credit score is impacted by how the deed in lieu is reported. Many people don’t realize that the bank can report your deed in lieu three different ways and of those three different ways, the negative impact will vary from most negative impact to lest negative impact. I would strongly suggest you read her article to learn more about how it’s reported. It was a huge eye opener for me.

Finally, I found a great article, maybe the best one on what the future may hold for those of you who have completed a short sale vs a deed in lieu. Now this article is very recent, in comparison to the other two, it was written back on 7/8/2013 by Alanna McCargo and even better, it’s posted on the Equifax forums giving it credibility. It’s titled “Can I buy a Home After a Short Sale or Foreclosure” and, the best part is her approach to credit fundamentals and how important it is to do all you can to protect your credit.

All in all, after these I read these articles and did some further investigation on my own, here is what I learned.

  1. Your credit will be negatively impacted by a Short Sale, Foreclosure or Deed in Lieu.
  2. The negative impact to your FICO score will be marginal at best between the Short Sale, Foreclosure or Deed in Lieu.
  3. When you agree to participate in any of these default disposition options, CONSUMERS MUST READ THE TERMS AND CONDITIONS OF THEIR PARTICIPATION and watch out for how their action is being reported to the credit reporting bureaus. The truth is, some reporting options are much more negatively impactful than others. Consumers need to know they have options they can negotiate here for a less negative impact to their credit.
  4. Finally, benefits like, relocation assistance, no risk of future deficiency judgments are not guaranteed and once again, CONSUMERS MUST READ THE TERMS AND CONDITIONS OF THEIR PARTICIPATION as these additional benefits are NOT guaranteed. Consumers have options here to negotiate a better deal and should be aware they have options.

If you are considering a short sale, contact me, Jesus “Jesse” D. Gonzalez Jr. Realtor / Principal Broker of Liberty House Realty LLC. I would be happy to discuss your options with you and how we can help. 615-424-0961

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Comment by Linda McKissick on November 1, 2013 at 9:58am

From personal experience, I have to agree, it is SO important to see how the bank has reported your default to the credit bureaus and that the credit bureaus are reporting correctly!  I am 4 years out on a short sale closure and was denied when trying to switch cell phone companies and buy a new cell phone.  The reason why is because Experian was reporting a foreclosure instead of a short sale. 

I opened a dispute and now Experian has put I am in an ACTIVE foreclosure, as of 10/2012 when I filed the dispute at Experian!  That is just fraudulent reporting!  In reality it was a short sale that closed escrow in July of 2009!  Lender is Aurora.

Persons who have gone through default of any kind, should be on top of their credit reports from the beginning.

Comment by Frank Popeleski on October 29, 2013 at 10:07am

Thanks for the articles Jesse, this has been an area that has not received a whole lot of exsposure, thanks.

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