There are no Federal Laws that govern how a Short Sale is reported to the Credit Bureaus. Because of that, and the fact that each State has vastly different laws governing the Foreclosure Process – we are seeing Mortgage Credit Reports for the exact same situation, with the Short Sale reported differently.
Unfortunately, we have to go by what’s on the Credit Report. Each mortgage program has a different waiting period requirement for purchasing another home after a short sale and the Guidelines for FHA and Short Sales are changing shortly.
Okay – so maybe it’s not a “Ruling” but FHA Home Loans announced on December 16, 2009 what they think about homeowner’s filing Short Sales . Basically, FHA sees short sale homeowners falling into one of two camps:
- Those who are current on their mortgage leading up to the short sale.
- Those who have delinquencies leading up to the short sale.
If you fall into that SECOND Camp (and you were filing the Short because you are BEHIND on mortgage payments) – well – sorry to say this, but you are toast. You can’t get another FHA mortgage for 3 years.
There are a FEW exceptions to this… Exceptions to the and Short Sales Guideline would be due to circumstances beyond the borrowers control i.e. death of primary wage earner or a long-term uninsured illness. However the credit report must indicate borrower had satisfactory credit leading up to circumstances beyond the borrower’s control.
If you are in that FIRST Camp (and you didn’t miss any payments) then you CAN get FHA financing. The tough part will be that the with homeowners who are current on their mortgage leading up to the short sale are in a real tough place with their current mortgage holder actually agreeing to the Short Sale… they just don’t have as much incentive!
Our experience is that Servicers looking at borrowers who are current on their mortgage take a long time granting a short sale. This affects borrowers who move due to job re-location and the current market hasn’t recovered enough yet to reflect equity.
Here’s the OTHER problem… some mortgages that are Short Sales actually reflect on the Credit Report kinda’ like a “Repossessed Car” (foreclosure) because of the DEFICIENCY balance the bank reports. Because there is NO STANDARD way for the Banks to report Short Sales, some are reporting them simply as paid off loans, and others are reporting “paid with balance still owing.” This complicates the way the Underwriter looks at the FHA and Short Sales Guideline – because the Underwriter has to go by what the Credit Report reflects.
If you are a homeowner and you were current on your mortgage payments, and you were in a Short Sale – BUT your lender shows the information to the Credit Bureau with a Deficiency Balance, you will likely have a problem finding a lender who will do the mortgage. FHA says they will insure the loan – but that does not mean the banks will make you a loan, unfortunately.
OUR BEST ADVICE is for you to call a lender approximately 60 days BEFORE you close on a Short Sale… and then again after you close on the Short Sale. Talk to them about your credit, and the situation and see if you can qualify for a FHA Mortgage Loan or USDA Home Loan financing. We have been able to do loans for couples who quick deeded a spouse who was on the Deed of Trust, but not the NOTE – and then made a loan to THAT spouse (who was not on the Short Sale / Foreclosure note to the bank) … There are some options, so talking to a lender to find out what your options are is the smart way to do this!
If you are in the North Carolina Home Loan market – we would be glad to help! Please call Steve and Eleanor Thorne, 919-649-5058, or leave us a comment with questions about FHA and Short Sales. I try and answer all comments. You can also connect with us on Facebook or Google +
thanks for this – happy holidays 😀