A client visited with me in my real estate office in Fremont http://www.MyColdwellBankerhome.com last night. He makes a good income and is capable of buying a home in the Mission San Jose Area of Fremont, which more most is no easy task. As we talked further, he disclosed that he recently got out of a short sale. It closed escrow in August.
If you know just one thing about buying a home it is that the lender will look at your credit and put it into the long equation on the home qualification formula. What do you think his credit showed?
After we both sighed, he authorized me to pull his credit. His credit showed that he now had two "derogs" on the credit report. A derogatory event on a credit report is never a good thing. If someone you know has had or is going through a short sale in California several things will appear in the credit report when it is all over. The first thing they may notice is the highlighted derogs. This will specifically show as three, thirty-day lates on the credit report. It will show as a ninety-day ding. What's more is that say the owner had a first and a second loan, or HELOC, a home equity line of credit, and they were both settled after the short sale closed escrow--now the owner will have two ninety-day dings on their credit report. How does that effect one's FICO score? Say someone had a nice 740 FICO score just prior to all this mess. After all is said and done with the short sale proceedings, their score will be reduced down to a 617 FICO or somewhere thereabouts. Good luck getting a loan with a 617.
Can it get worse? Yup. If the short sale lender recorded an "NOD" (notice of default) against the owner during the "lates" or at anytime during the short sale proceedings, many new lenders (when the short sale seller goes out and tries to get a new loan for another home) will treat this little bit-0-history as a foreclosure against the owner. A foreclosure means no loans period.
In closing, we certainly saw that he had the money and a great job with scores of income. But, because he had to choose the short sale of the prior home, his FICO score went poof. What is good about California is that it is almost impossible for a lender to go after a deficiency judgement for the difference of the loan and taxes. That's good for consumers, but bad in other areas. The lender will report the short sale to the credit bureaus and the ninety-day dings will appear. You cannot have your cake by getting the loan forgiven and the debt reduced to zero and eat it too.
I promised that as a good Fremont real estate agent http://www.tricityhome.com, I would do my due diligence, pull his prior HUD 1 settlement statement too to see if the lender recorded a NOD and call my banks to see what his options are. I will let you know.
By Jeff Pereyda