Effect On Borrowers of Short Sales
Q 1. Does a short sale adversely affect a defaulting borrower's credit rating?
A Yes. Lenders will report the short sale as being settled for less than the full balance. This would show up on the borrower’s credit report as a negative mark for seven years. (Cal. Civ. Code § 1785.13.)
Q 2. Suppose the borrower is late with his/her mortgage payments, causing the lender to begin the foreclosure process by filing a notice of default. Before the foreclosure sale occurs, the borrower pays the lender what is owed on the note. Could these activities appear on the borrower's credit report?
A Yes. The lender can report to a credit bureau receipt of any payments made 30, 60, 90 or more days after their due date. This may appear on a borrower's credit report as a "foreclosure in process," "foreclosure proceedings," "current was 30," or in some other way. Any such terms, or other similar reporting comments, harm that individual's overall credit rating.
Q 3. Is the method by which lenders report a short sale a negotiable item?
A Typically, no. The short sale is usually reported to credit reporting agencies as settled for less than the full balance. However, a borrower may try to negotiate this at the time the short sale is being arranged.
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The information contained herein is believed accurate as of November 28, 2006. It is intended to provide general answers to general questions and is not intended as a substitute for individual legal advice. Advice in specific situations may differ depending upon a wide variety of factors. Therefore, readers with specific legal questions should seek the advice of an attorney. Copyright© 2006 CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.). Permission granted for use by C.A.R. Legal Department. |