Short Sale Warning: News From FICO

What you don’t know about short sales could ruin you.

If you read this blog, you know I believe short sales serve their purpose, but subject-to sales in my opinion are better for everyone involved. There are many reasons for that.

But here’s something more you need to know about short sales. It comes from FICO, the company that looks at statistics and data and then decides how, why and what criteria affect your credit score. It’s a mind-numbing and ever-shifting calculation, no doubt.

Since the 80’s they’ve been calculating consumer credit risk depending on 5 factors:

  • Payment history
  • Amounts owed
  • Length of credit history
  • New credit
  • Types of credit

As you can guess, FICO takes into account reports from lending institutions and historical data. It tracks individual financial events in a person’s lifetime to come up with averages. That’s how they can look at your particular situation and report a score between 340 and 840. The higher the number, the more likely you qualify for a loan, and the better terms you get with creditors.

Recently FICO turned out some pretty incredible news.

Last month FICO revealed that short sales represents only a slightly better risk than foreclosures.

That means if you are facing a delinquency on your mortgage or are already late on payments, choosing a short sale doesn’t help your credit. 

Unfortunately, according to FICO standards your credit will take the same hit as a foreclosure. Not good news if your house is underwater and/or you are considering a short sale.

Your credit is punished the same way for a short sale as for a foreclosure. So why would someone want to bother with the time and elbow grease involved in doing a short sale? There are a few reasons that come to mind:

  • The homeowner will be safe from future legal action if there was a release of future liability as a condition of the short sale. A foreclosure doesn’t release future liability unless it’s part of a bankruptcy.
  • Cash is offered by the banks and by the federal government to homeowners, as an incentive to negotiate a short sale. These incentives are paid to the seller at closing. There is no cash available to the homeowner that loses their home in foreclosure.
  • Successful negotiation of a short sale will keep a foreclosure off the homeowner’s permanent record. The homeowner who suffers a foreclosure will always have to disclose the foreclosure when asked by potential employers, banks, or other lenders.

While short sales may be popular these days, please don’t assume that they are right for everyone. You need to look out for yourself by assessing your personal financial situation and your future.

For example, if you have a family that depends on you for financial security or are anticipating education or health care costs within seven years, a foreclosure or the equivalent — a short sale — may limit your choices.

Some desperate homeowners perceive they have nothing to lose by doing a short sale on their home. The reality is that they may indeed lose more than they bargained for.

Is your credit score important to you? If so, then you should definitely consider alternatives to a short sale.

If a homeowner has fallen several months behind on payments (5-6 months or more), the loan arrears may be too high to be paid off through a subject-to sale. However, if a homeowner is willing to take action sooner rather than later when they fall behind, we can avoid the short sale process.

While I am not a financial advisor, I do keep an eye on these issues. Markette Properties has helped other cash-strapped homeowners find a solution that makes them comfortable and optimistic about the future again.

You may be able to get a higher, quicker sale price for your house by working with us. We’re quick, fair, and we know how to buy houses subject-to!

We can buy your house fast in Texas! Markette Properties presents an unique, simple approach for selling your home! We are real estate investors. We buy houses in Texas just like yours! We are dedicated to the highest professional real estate standards for all of our clients.

Do you want to sell your house fast in Texas for top dollar with the least hassle? Give us a call! (210) 853-2788 or click the button below.

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