There has been a longtime notion that opting for a short sale as opposed to a foreclosure is a way to avoid a major hit to your credit score. Most homeowners find out after the fact that a short sale has the same effect that a foreclosure will have on your FICO score. In a short sale, homeowners basically hand over their keys to the lenders. The home is then sold for less than is owed on the mortgage. Many struggling homeowners are under the impression that their cooperation will be rewarded with a lesser hit to their credit score. However, foreclosures and short sales are considered the same occurrence in the FICO formula for credit scores and can remove between 140 and 160 points from a score.
The FICO research showed 72% of those with a foreclosure later defaulted on another debt, compared with 55.1% of those with a short sale and 50.1% of those who arranged a deed in lieu of foreclosure, which means they voluntarily surrendered their keys to the bank rather than going through formal foreclosure. Following the mass amount of defaults on mortgages from the housing market crash, the rate of short sales has spiked. Rather than fighting foreclosure, homeowners seem to have surrendered to the banks. In most foreclosure cases, economic conditions are the reason homeowners are unable to keep up with their mortgage payments. A hefty percentage of homeowners’ mortgages are now ‘underwater,’ meaning they owe more on their mortgage than their home is worth. FICO’s reason for not altering the formula is based on the notion that homeowners who are foreclosed on or participate in a short sale, are more likely to default on another loan in the near future.
To read more on this story visit: http://money.msn.com/credit-rating/why-short-sales-trash-your-credit?page=2
Choosing the right attorney can make the difference between whether or not you can keep your home. A well-qualified attorney will not only help you keep your home, but they will be able to negotiate a loan that has payments you can afford. Foreclosure defense attorney, Timothy Kingcade has helped many facing foreclosure alleviate their stress by letting them stay in their homes for at least another year, allowing them to re-organize their lives. If you have any questions on the topic of foreclosure please feel free to contact me at (305) 285-9100. You can also find useful consumer information on the Kingcade & Garcia, P.A. website at www.miamibankruptcy.com.