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Real Estate Short Sale an Emerging Credit Report Blemish

By Faye Mergel
Published: Saturday, October 17th, 2009

Most consumers are worried about losing their homes to banks knowing that a foreclosure is a serious blot on one’s credit report. However, many people do not know that short selling property could also severely tarnish a person’s record with the bureaus. Many homeowners who can no longer finance their homes or pay off mortgage loans decide to sell the property they own. But there are people who owe more to lenders than their home’s value. So they ask lenders to consider their financial difficulty and accept the proceeds from the sale.

Real Estate Short Sale an Emerging Credit Report BlemishMarket analysts note that many consumers are forced by financial difficulties to negotiate with creditors on lowering fees. As of February this year, short sale and mortgage modifications are the most popular solutions for people who can no longer pay lenders back. This month, the National Association of Realtors (NAR) reported that short sales make up one in every ten home sales.

Homeowners think that short selling their property is a safe alternative since they pay off part of their debts, at least. But specialists say real estate owners are not aware that it could severely impair their chances of getting loans in the future. Experts add that creditors submit information to credit reporting agencies (CRAs) that a person has not paid as agreed. Lenders forgive but CRAs do not forget, according to them. A short sale could appear on a person’s name for seven years.

NAR says it does not have information on what the historical records on short sale are since they used to be considered insignificant. It is just lately that they have started gathering data, primarily because of its rising number of cases. Across United States, currently 16 million homeowners owe more than their property’s worth and may be forced in giving their homes up.

Experts explain that lenders agree on short sales simply because they want to minimize their losses. They add that lenders prefer this than foreclosure since foreclosed homes require additional costs while vacant and also sell cheaper than short sold homes. Specialists say homeowners who short sell their property generally go a notch down in the credit scale. An A-rated borrower is likely to become a B borrower. However, consumers whose homes are foreclosed would automatically become D-rated borrowers.

Specialists emphasize on better debt management so they can avoid a major credit report blemish. They say consumers should not borrow more than they can handle especially during unstable economy since it will really hurt their credit score.

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