Legal Question in Real Estate Law in Florida

A short sale is the process whereby a lender agrees to discount an existing mortgage against a property. Thus the balance of the loan is reduced and generally your debt is foregiven. How this will effect your credit varies depending on how the homeowner got to the short sale situation in the first place and how the lender reports the principal write-off.

The purpose of the short sale is so the lender will not have to take the property back from the homeowner through a foreclosure action.

Short sales are promoted because it causes less damage credit damage to the homeowner. Additionally, the lender benefits by obtaining a better return than can be obtained on the courthouse steps.

The lender generally requires that the homeowner/seller to become in default on their mortgage before they will start negotiations for the short sale. However, this is not necesary true anymore. The paperwork is almost the same as when you do a Laon Modification.

If the owner goes into default, their credit rating will begin to spiral downwards and almost immediately reduces their credit by 100 - 125 points. As each month passes in default and the home is not sold, the homeowner's credit score sinks further.

Additionally, credit card issuers may picked up on this problem by a customary review of the owner's credit report, they may accelerate their interest on open balances and reduce their credit limit to whatever is outstanding. With a 25% to 35% interest rate on being assessed credit cards, the homeowner usually also stops making these payments and the score will drop slowing by another 100 - 125 points. It is best to negotiate with the credit issuer and seek redress and fair dealings.

Ironically, the lower the homeowner's credit score initially (650 versus 750) the lesser the impact on his credit scores. If and when the short sale is completed, the lender will post a loan write-off on the homeowner's credit report and this will result in another 50 - 75 point reduction. This amount could be less depending on what the score is at that time - remember, the lower the score to start, the lesser the deduction.

If the short sale isn't completed and the property goes to a foreclosure sale or through the judicial process or a trustee's sale, the impact on the homeowner's credit report is numerically not that important at that time. However, the posting of a foreclosure is what will keep the homeowner from getting a new mortgage for from 4 to 5 years. With a short sale on a former homeowner's credit report, they may be able to finance a new home in 1 to 2 � years or sooner- it all depends on the lender and whether they have defaulted on other credit.

Every timely payment made after the closing will improve that the credit worthiness of the homeowners. With positve payment history, 9 months to 18 months later the credit score should return to normal.

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