Short Sale Blog

Here is the latest short sale news at Seattle Short Sales. We assist hundreds of Seattle area homeowners with short selling their home and avoiding foreclosure.

How Does a Short Sale or a Foreclosure Affect My Credit Score?

Seattle Short Sales - Thursday, March 28, 2013

Just because you are having trouble paying your mortgage right now, doesn’t mean that you may not want to enter the housing market again a few years down the road. Smart homeowners who are looking to get rid of their current mortgage debt know that the decisions that they make now will affect their future. One of the things that they consider when assessing solutions (negotiating a short sale, filing bankruptcy, or simply awaiting foreclosure) is how their choices will affect their credit score, and their ability to get new financing.

The credit-reporting agencies (Experian, Transunion, and Equifax) are notoriously tight-lipped about how they calculate credit scores. How a short sale or a foreclosure will affect your credit score depends upon a number of things, including what your credit score was before the short sale or foreclosure (higher scores tend to fall further), and, especially, whether you were delinquent on mortgage payments before the short sale.

Since the credit-reporting agencies do not release their formulas, most of the information available is more “anecdotal” - from blogs and discussion forums. Much of the older information (as in two or more years old) indicated that the hit to a credit score from a short sale was about the same as the hit from a foreclosure on record. However, things have changed lately!

Much of the actual credit score hit was due to the mortgage payment delinquency. Mortgage delinquency is what leads to a lender initiating a foreclosure, so the two go together. It used to be that a borrower had to be delinquent on mortgage payments before most lenders would even look at a short sale request. However, these days, most lenders will consider a short sale request by a borrower who has not yet missed any mortgage payments. In particular, if that borrower can demonstrate to the lender that they are “at imminent risk of default” - i.e. that changed circumstances (e.g. unemployment, increased medical expenses) mean that the borrower will default soon if nothing is done.

This means that, these days, it is possible to do a short sale without ever becoming delinquent, or, in the case of some short sale programs, being only one month delinquent.

For a borrower who has remained current on mortgage payments, the “hit” of a short sale on their record can be as little as 60 points, or even less, and it may remain on record for as little as 12 to 18 months. For borrowers who were behind on mortgage payments when they did the short sale, the hit may be more like 100 points or more. In contrast, a foreclosure may cost the borrower between 250 and 300 points. A foreclosure remains on the borrower’s record for seven years.

Seattle Short Sales has a team of experienced and successful real estate specialists dedicated to working with distressed homeowners. We close, on average, 12% of all short sales per month in King County. In the last 24 months, we have negotiated over 756 short sale approvals, and discounted over $81 million of mortgage debt for distressed homeowners.

In addition to our short sales negotiators, our team includes dedicated professionals advising and advocating for homeowners in the fields of: loan modifications, bankruptcy, debt settlement and collection defense. As part of our service, we offer unlimited attorney and CPA consultations.

If you are a homeowner who is struggling to make ends meet, and would like to learn more about the options available to you, please go to: http://seattleshortsales.com/homeowners/

You can also contact Lambros Politis on Google+ or to find more up to date information on this subject, go to the Ark Law Group Blog. 

Five Hidden Benefits of Bankruptcy

Seattle Short Sales - Thursday, February 07, 2013

People who are considering filing bankruptcy are often concerned that there may be negative effects. Some people are concerned about their ability to find credit after bankruptcy. Others are concerns with keeping their finances private. And almost everyone worries about how a bankruptcy will impact their credit score.

What many people do not know is that there are actually a surprising number of positive effects of filing bankruptcy. Here are just 5 ways that bankruptcy can have a positive effect on your finances.

1. Get better financing rates

For consumers who have serious credit problems, the interest rates offered on credit cards, car loans and other forms of credit are very poor. If your credit problems are serious, you may not even qualify for this type of credit at all.

However, for debtors like this, filing bankruptcy will actually significantly improve the availability of credit and the interest rates offered. This happens because creditors know you will not be able to declare bankruptcy again for many years to come. As a result they will be more willing to lend to you, because you will be unable to discharge the debt in bankruptcy for a long time.

This option is most attractive for people who usually handle their finances well, but who have been pushed to bankruptcy as the result of some misfortune. This has become much more common in recent years after many people lost their homes to foreclosure as a result of the recession. If you have suffered a temporary setback that is keeping you from obtaining new credit, you may want to consider bankruptcy as a way to get better rates.

2. Keep employers from discriminating against you

These days, employers are careful about checking the credit history of people they hire or promote before making an offer of employment. The fear of missing out on a future job might scare some people away from exercising their right to declare bankruptcy.

However, what most people do not realize is that employers cannot use your bankruptcy filing to disqualify you from employment. In contrast, they are fully able to consider debt that has not been discharged in bankruptcy to deny you employment. What this means is that people with a poor credit history who have not declared bankruptcy are in a worse position than those who have. So, if you have poor credit history which is preventing you from getting a better job, filing bankruptcy can help eliminate this barrier.

Additionally, bankruptcy may be a good way to keep your current employer from learning about your debt problems. Many consumers hold off on filing bankruptcy until their creditors start using the court system to get money. Often, this means filing a garnishment against the consumer’s pay check. If you file for bankruptcy, these creditors will no longer be able to garnish your pay check and your employer will not need to know the intimate details of your finances.

3. Use bankruptcy to raise your credit score

Many people considering the option of bankruptcy are concerned about the impact a bankruptcy will have on their credit rating. While bankruptcy can negatively impact your credit score in the short term, this is not always true on the longer term.

In fact, some consumers with very high debt loads actually see an improvement in their credit scores. This happens because the information as it appears on your credit report regarding late payments or unpaid balances is removed, and marked as “Included in Chapter 7 Bankruptcy” or “Included in Chapter 13 Wage Earner Plan”. Additionally, your credit score is partly based on a comparison against people in similar situations. So, after filing bankruptcy, your credit score is compared against others who have declared bankruptcy, which can actually make your finances seem much better.

Even for those who do see a decrease in their credit score due to bankruptcy can rebuild their credit quicker than if they had not filed bankruptcy. After your bankruptcy, your outstanding debts are no longer considered delinquent, so they stop weighing your credit score down. Once this happens, you can again obtain credit with reasonable interest rates, and manage your debt load. If this is done carefully, you can rebuild your credit score into the 700s fairly quickly. 


4. Get your driver’s license back

If you have lost your Washington driver’s license as a result of too many tickets, you can file a Chapter 13 bankruptcy to get your driver’s license reinstated. You will still have to pay back the entire balance owed on these tickets, but you will not be subject to any interest or penalties, and you will not have to wait for the fines to be paid off before you get your license back.

As soon as you file bankruptcy, we can send your petition to Olympia and seek reinstatement of your driver’s license. Although you will still have to pay the balance of the tickets, you may do so over a repayment period.

5. Stay in your home

Many people believe that filing bankruptcy means they will lose their home. This is not true. In fact, if you are behind on your mortgage payments and are facing the threat of foreclosure you may be able to declare Chapter 13 bankruptcy to keep your home. You will have to start paying your mortgage again after you enter your petition, but you may be able to negotiate a better interest rate. Additionally, you will be required to pay your back-mortgage payments, but you may do so over the length of your Chapter 13 plan, which is usually three to five years. This is often a much better prospect for homeowners than foreclosure.

Bankruptcy can also be an effective means of lowering your mortgage payments.  Prior to the recession, many homeowners either bought new homes with two mortgages, or took out Home Equity Lines of Credit on their existing homes. After the housing bust, many of these homes became worth a lot less than the value of the mortgages. What this means for many homeowners is that they are now paying more on their multiple mortgages than the house is worth.

If you are in this situation, there is an option to eliminate your second mortgage or Home Equity Line of Credit in a Chapter 13 bankruptcy. This process is called “Lien Stripping”. The first mortgage on the house would remain the same, but you would pay a fraction of what you owe to the second lien, then have it discharged at the completion of your Chapter 13 bankruptcy.

Seattle Short Sales has a team of experienced and successful real estate specialists dedicated to working with distressed homeowners. We close, on average, 12% of all short sales per month in King County. In the last 24 months, we have negotiated over 756 short sale approvals, and discounted over $81 million of mortgage debt for distressed homeowners.

In addition to our short sales negotiators, our team includes dedicated professionals advising and advocating for homeowners in the fields of: loan modifications, bankruptcy, debt settlement and collection defense. As part of our service, we offer unlimited attorney and CPA consultations.

If you are a homeowner who is struggling to make ends meet, and would like to learn more about the options available to you, please go to: http://seattleshortsales.com/homeowners/
 

Banks Easing Up, Extending Credit to Mortgage Defaulters

Seattle Short Sales - Monday, June 06, 2011
According to a new report published yesterday in the Wall Street Journal, lenders are easing up and offering loans to people with a less than perfect credit record - including those who have defaulted on their mortgages.

A study quoted in the article indicates that 64,500 borrowers who had defaulted on their mortgages received a consumer loan between February 2009 and August 2010. The majority of those were credit cards, but 40% of those borrowers received a personal loan or car loan or line of credit.

In evaluating clients for loans, banks are aware that many homeowners who are actually responsible found themselves in financial trouble due to the housing bubble and bust. So, although borrowers who have defaulted on multiple loans will still experience difficulties in negotiating any new loan, borrowers who have defaulted on their mortgages but are current on all other loans are actually considered to be low-risk clients.

While a blemished credit history may not prevent consumers from negotiating a loan, they still may end up paying more in interests than borrowers with a perfect credit report. Credit card interest rates could be 5 to 10% higher for these borrowers, and interest on a car loan could be three or more times higher than for low-risk borrowers.

If you are a homeowner, and would like to learn more about short selling your home, please go to: http://seattleshortsales.com/homeowners/

If you are a real estate agent, and would like to learn about our no-fee short sale service, please go to: http://seattleshortsales.com/agents/

How Late Mortgage Payments, a Short Sale, or Foreclosure Can Affect Your Credit Score

Seattle Short Sales - Friday, April 15, 2011

Fair Isaac, the creator of the Fico credit rating system, has traditionally been reluctant to release their formula for calculating consumers’ credit scores. However, as reported last week by the Wall Street Journal, in response to various rumors and incorrect information about how credit scores are calculated, FICO’s director of mortgage markets Joanne Gaskin has compiled and released information on how credit scores are calculated.

A credit score of 750 or more is considered to be very good. The scale ranges from a low of 300 up to 850. A good credit score is important to qualify for a home loan or other loan in the first place. But your credit score also makes a difference in the interest rate you receive for your loan. The Wall Street Journal article gives these two examples, showing how a borrower with a higher credit score may save thousands of dollars in interest:

  • A person with a 620 score would pay almost 12% interest on a four-year $25,000 car loan, compared with less than 5% for someone with a 780 score—a difference of almost $4,000 over the life of the loan.
  • On a 30-year fixed-rate $250,000 mortgage, a person with a 620 score might qualify for a 6% rate, but probably wouldn't be able to get mortgage insurance, which is required if your down payment less than 20%. A person with excellent credit might land a rate less than 5% and pay about $3,000 a year less.

The hit to your credit score for specific actions, such as late mortgage payments or a short sale, depends upon your original credit score: the better your score, the harder the hit. For those who start with a higher credit score, it also will take longer to regain that high rating. Here are some examples:

Table showing how late payments, short sale or foreclosure affects credit score

If your credit score has taken a hit, the best way to rebuild it is by using it. If you simply try to avoid borrowing, you essentially “freeze” your credit score at that damaged level. Borrowing, and paying back your loans by making payments on time, is the best way to rebuild that credit score.

If you are a homeowner, and would like to learn more about short selling your home, please go to: http://seattleshortsales.com/homeowners/

If you are a real estate agent, and would like to learn about our no-fee short sale service, please go to: http://seattleshortsales.com/agents/

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