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Short Sale/Deed in Lieu how it affects your credit

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Short Sale/Deed in Lieu how it affects your credit

I need an answer to a question regarding short sale or deed in lieu of home mortgage and how it affects your credit.  Nobody seems to have an anwwer to this question.  I currently have two homes and need to sell one.  I am current with the both of them.  Recently, as you know, the market has dropped dratiscally, therefore,  the value of my home is lower than the mortgage.  I am not having trouble making payment, but just need to sell one.  My mortgage company advised me to place on market with realtor MLS for two months and contact them and request a deed in lieu, where they purchase the home from me, prior to a short sale in order to not pay on the forgiveness of debt.  Will this have a negative inpact on my credit score and how much?  Will I be able to obtain another mortgage in the near future.  I currently have a good credit score.  Need some legal advice.
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Moderator Emeritus

Re: Short Sale/Deed in Lieu how it affects your credit

I cannot offer up much advice on what you should do, I will defer to the mortgage folks. I can however explain what might happen to your scores since you asked. In terms of FICO scoring, a short sale would be treated almost the same as a foreclosure or a deed in lieu of foreclosure. If any balance and/or past due amounts are also being reported, this will lower scores even more. In fact it can get even worse if the amount owed is high, the higher the balances the bigger the hit will be to your scores. How much is hard to say but this type of serious derog would do as much damage as a collection, CO, judgment or any other public record.



Message Edited by fused on 11-05-2007 12:34 PM
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Super Contributor

Re: Short Sale/Deed in Lieu how it affects your credit

A deed in lieu is considered the same as a foreclosure when you go to obtain mortgage financing in the future, there is a specific question on deed in lieu's in the declarations section on the uniform residential loan application.  How it impacts your credit score is how the lender chooses to report things, if there are past due payments, then you should anticipate a pretty big hit to your credit scores.. if all payments are on time and you deed in lieu without there being any mortgage lates, then it'd just be the foreclosure notations on your credit.  A short sale is the lender agreeing to accept less of a payoff, so the event of a short sale itself shouldn't impact credit if there aren't any late payments.  Depending on the laws in your state and if the mortgage is recourse, you could get a nice sized 1099 from the lender for forgiveness of debt.  For legal advice on this matter I really recommend you consult a tax CPA/attorney.
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