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Short Sales Appear as Bad as Foreclosures on Credit Report

2013/04/18 by

So I’m opting to stay on the topic of foreclosures and similar misfortunes, because as it turns out, short sales and foreclosures are essentially seen as one in the same in terms of how the events are recorded on a credit report, and viewed in the eyes of lenders. It sounds bizarre, but evidently there is no special code to designate that a home has had a short sale as opposed to being foreclosed on, so the two appear interchangeable on a credit report. But most standards, a homeowner whose house has been foreclosed is eligible for new loans 7-10 years after the foreclosure, and short sales are about 2 years. But when there’s no apparent difference between the two on a credit report, short sellers find themselves in the ballpark of needing to wait 7 years to be allowed to borrow money again. Check out this fascinating article by Drew Harwell of the Tampa Bay Times:

“When his home’s value plunged, George Albright opted to sell it for less than he owed, believing the “short sale” would scar his credit less than a foreclosure.┬áBut after saving for a down payment and building back his credit, the single father learned he still wouldn’t qualify for a new loan. After two years in the penalty box, underwriters said, he still had five more years to go.

To his surprise, his credit history showed a foreclosure, a “kiss of death” stemming from a strange credit quirk. Banks and credit bureaus have no special code to report a short sale.”

Click here to read the crazy truth about how short sales and foreclosures are viewed the same way on credit reports.

Pretty crazy, right? Makes me want to petition the crap out of whoever makes the codes for the credit reports, so that foreclosures and short sales can get proper differentiation. It’s not ok with me that people who put in the work to sell their house, scraping up what they’re capable of for the house payment, are put into the same arena as those who did not make that same effort.

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