This is definitely one of the top three questions I am asked when interviewing sellers regarding short sales. Obviously there are a lot of factors that go into credit analysis and no 2 people have exactly the same profile. So I want to start with this disclaimer. If one person gets certain results, there is no guarantee that another will get the same results.
About nine months ago I did a short sale for a client whose name will be kept anonymous. They started with a credit score of about 750. Before I had begun to work with them, they actually were late on their mortgage several months and had begun to get credit dings. They had successfully finished a Hamp loan modification with Bank of America. But at the end of it, they realized that the loan modification just wasn’t going to fix their future and at best provided only temporary relief. So of course they contacted me to find a more permanent solution.
To make a long story short, it took a year and a quarter to complete the Bank of America short sale. Turns out it was the last of their manually processed short sales prior to switching to their new equator system (which works much quicker). So after a year and a quarter of late payments and the charge off from the short sale, their FICO score ended landed at 618. According to the client, it was still good enough to go out and get a new auto loan with top tier loan rates only two weeks after finishing the shorts sale.
One would say, “not bad” considering all of the credit blemishes and the fact that they just lived for 1.25 years in the home without make payments. (Of course that wasn’t their wish, just a side befit of the bank’s incompetence.)
But wait, it gets much better. This client is one of the few that actually tracked his credit. And in as little as 9 months, I called him for follow up. I can happily say he was delighted to report a FICO score of 735. Wow that’s right, his credit was almost fully restored in as little as 9 months. That’s incredible.
And of course these results seem to mirror what Howard Clark has been saying about how a short sale affects your credit score. According to him, it is supposed to drop 120 points. But what I couldn’t believe was just how fast it came back up. My best guess is that because of the short sale, my clients were able to unload all of their debt and clear up their debt ratios. Being free and clear of this heavy burden was obviously beneficial in more ways than one.
So at the end of the day, it just goes to show you that there is no sense in suffering. Doing the right thing for your future, and your balance sheet will help both you and the economy. The fact that the credit bureaus will see you as less of a risk only validates this thesis.
Cheers to good financial health.
