A short sale is going to do some damage to your credit. However, it doesn’t have to be devastating and there are ways to minimize that damage. If you can complete the short sale before the bank initiates foreclosure proceedings you are much better off. However, even if they initiate proceedings it is beneficial to complete the short sale so there will not be a public record of a foreclosure on your credit report. It will be reported as being settled for less than the amount owed and if the bank initiated foreclosure proceedings or if the payments even got 90 days behind that trade line will indicate that it was in pre-foreclosure status.
Prevent Your Loan From Getting So Far Behind That Foreclosure Is Initiated
In Arizona it is fairly easy to know when you are getting close to the point where the bank is going to initiate foreclosure proceedings. Borrowers here receive a Breach Letter which states that the borrower has a certain amount of time to cure the breach before the bank can/may move forward with a foreclosure. Sometimes the bank does not move forward even if the borrower does not cure the breach but it is safer to assume that they will. Often a breach letter will give you an option to make one or two payments to cure the breach. Sometimes they ask that you pay all of the past due amount. Either way, if you have the money to make at least one payment you can usually talk to your bank and buy more time. They really do want you to cure the default.
Timing Your Default
The ideal time to begin the short sale process is when you can still make your payments, but you know that your default is inevitable. This allows us to work together to get a buyer in place before you are forced to default. Since your fastest time of recovery credit-wise after the short sale depends on you remaining less than 90 days late on your mortgage before the short sale, timing is very important. It typically takes a bank 30-45 days to get the contract to the lender after we submit it. Many lenders will approve a short sale even while the borrower is current on their loan if there are valid reasons for hardship. This provides an opportunity for the proactive borrower to keep his/her credit rating as high as possible, even during the short sale process.
Even if you are unable to avoid missing payments, you can still keep your credit score as healthy as possible by paying everything else in a timely manner before, during, and especially after the short sale.
Why Even Default At All?
You may not have to. If you contact your bank and a real estate agent early enough, it is possible to sell your home without becoming late on your mortgage payments.
Keep Your Other Obligations Current
As much as possible, keep your other credit obligations current while doing a short sale. This will enable your future creditors to see that while you may have run into trouble with your home, you still remained responsible and paid as many items on time as was possible. This will also cause your credit score to rebound in the fastest amount of time after the short sale.
If you have further questions or are considering a short sale, give me a call. I’d be happy to have a no-pressure discussion with you so that you can make an informed decision about whether or not a short sale is a good option for you. You should also call your accountant and a good real estate attorney about the advisability of doing a short sale.
Robin Willis – (520) 481-3695
Contact me now for a hassle-free chat!