BiggerPockets

I have heard different answers and was wondering what you guys had to say?
Thanks,
Erik

Ok thanks!!! :D

They will barely talk to us and are being completely unreasonable. What then?

Someone said credit score would only go down 90 points or so with a short sale? Or was that a foreclosure? That seems awfully generous. We had almost 800 credit until we lost two investment homes. I'm assuming it will go down to like 200 now? Is that reasonable? Two credit cards dumped me so far. We had to quit paying the two mortgages back in July so are very late on both.
If I lose my main home will anyone even rent to us? Will uncle sam take our assets/home/IRA's?
What kind of lawyer should I get if any?

i pull people's credit all day all the time. there is no rhyme or reason for scores and how they turn out. i can say that being perfect gives you great scores. but i have clients who have serious bankruptcies and delinquencies that have great scores too. ive had people w 700+ scores who got refers on fha loans, but had people who have 450s get approved.

what pops up on a credit report is luck of the draw.

i can say this though. lately, when i need a 700+, i get a 699. when i need a 680+, i get a 679.

we live in the matrix, so do worry about it, just do what you gotta do.

As far as creditors coming after retirement accounts, 401k's & defined benefit plans are almost untouchable since 1974 when ERISA (Employee Retirement Income Savings Act) created standards for protecting emplyees retirement savings. I say almost, because there can be circumstances where if you were negligable or voilated a law, the account may be fair game.

Other accounts which are non-ERISA plans such as traditional IRA's, SEP IRA's, Simple IRA's, & KEOGH's are going to vary depending on which state you reside in. A few states have 0 protection while others have full protection. Check with a CPA/tax attorney for your individual location.

As always, and as flipper suggested, consult with a cpa/attorney in regards to these matters as they can get very complicated and trying to go at it by yourself could be a financial and legal disaster.

I feel like I should inform you all that a short sale will impact one's credit score EXACTLY the same as a foreclosure. Also, the " seasoning" period for becoming eligible to obtain a new loan with an institutional lender is EXACTLY the same: now 5 years.

It's a total myth that somehow a short sale is less damaging to one's credit. Why? Because the following events are all the same; that is, the definition of a " foreclosure" by Fannie Mae and Freddie Mac is:

Foreclosure

None in past 5 years with minimum 3 active trade lines more than 24 months old, with no late payments or derogatory credit after the foreclosure.

Definition of Foreclosure: Any 120 day mortgage late within the last 24 months, any notice of default or settlement on a real estate secured trade line (short sale), any deed-in-lieu or forbearance agreements.

The above is straight out of the Fannie Mae Selling Guide, so it's not speculation or conjecture. All underwriters know the facts: foreclosure/short sale = same/same.

The hit to one's FICO score is EXACTLY the same because each of the above events results in Score Factor Code #22--" serious delinquency, derogatory public record or collection."

If a loan has defaulted, and you call the lender, you'll hear a recording, " This is an attempt to collect a debt." You've gone over to the Dark Side and you are now in collection. Therefore, Score Factor Code #22 applies, and your credit will take a hit JUST AS IF the property went to sale on the courthouse steps.

The FACT I have explained above is now making its way into the collective consciousness of consumer awareness and doesn't bode well for short sale investors whose goal is to put the property under contract by convincing the homeowner that a short sale is somehow better. It isn't, so short sale investors had better be careful what they say. I predict there'll be a lot of lawsuits by homeowners who, once they fully understand the impact of a short sale--that is, it's EXACTLY the same as foreclosure--will be looking for someone to point the finger at. A typical response might be: " What the...?! The guy who bought my house through a short sale told me that a short sale would be less damaging! I could've stayed in my house expense free for a few more months! Who do I sue?"

The response by the lender as I've described it only makes sense. Whether a loan is foreclosed, or the homeowner agrees to a short sale, or gives back the keys, the lender got shafted. They don't care HOW they suffered a loss, only that they did. They want to ensure they don't lend to homeowners who shafted them for at least 5 years. They report to the gossip mongers (the 3 major credit bureaus) and the homeowner is toast for at least 5 years. The resulting point loss is EXACTLY the same for a short sale as for a foreclosure and it takes the same amount of time to recover.

If anyone wants corroborating URLs, citations from lender's guidelines or a list of Fair Isaac's Score Factor Codes, just say so and I'll post them.

Apples to apples, a 90 late in NO way has the same credit score effect as a foreclosure.

How can I say with sufficient tenderness what must be said? The impact of a 90-day late isn't the same as a foreclosure where underwriting guidelines are concerned. Why? Because the borrower had the tenacity to pull himself out of a hole before he went NOD. That's why, in my role as a loan originator (I negotiate short sales, too), I constantly counsel borrowers to do everything they can not to go NOD (120 days late)--if they want to soften the blow to their score and still qualify, without the seasoning requirement, for a future loan. They're a completely different animal when they're 90 days late as when they're 120 days late.

Still, both events--90 days down and foreclosure--are assigned Score Factor Code #22--" serious delinquency, derogatory public record or collection filed." Near term, the effect is EXACTLY the same. They are " weighted" the same. I can't stress this enough.

Where your understanding is a little bit thin is that over time--about two years--good credit behavior can supplant derogatory credit behavior where one's FICO score is concerned. But don't forget...there's still a notation of 90-120 days down or " settled for less than owed" [short sale] on one's credit report that must be explained to a subsequent lender. When the U/W digs a bit, s/he'll know that a forelosure--as defined by Fannie/Freddie--occurred and thus NO LOAN FOR YOU! until 5 years seasoning has passed.

Please note the distinction between " seasoning" --the amount of time that must elapse between the derogatory credit and a new loan--and a healthy FICO score. A consumer can, by sheer dedication to month-after-month on time payments--raise their credit score to, say, 680 but still have a foreclosure (as defined by Fannie/Freddie) to deal with when they apply for a subsequent loan. Even if the consumer has achieved a 700 score, they will be prevented from obtaining a loan if the short sale or foreclosure appears on their credit report.

The only way a homeowner can escape the consequences (destroyed FICO score and seasoning) of not performing as they agreed is to bring the difference between what they owe and the sales price to the closing table. The homeowner earns no points for " saving the lender the trouble of having to foreclose."

If you were in the lender's shoes, you'd see it this way, too.

As to the no discernable difference between SS, foreclosure and 120 days late, that's the glaring failure of FICO scoring, in my opinion. Because Score Factor Code #22 is the ONLY category into which any of these derogs may fall, it's completely true that, once one's credit score has been decimated, there's no incentive for the consumer to NOT file Chapter 7 and/or walk away from their upside down property and scrape the whole damn mess into the dumpster.

That's brutal.

A deadbeat is a deadbeat is a deadbeat as far as the FICO scoring algorithm is concerned.

That's even more brutal.

So the model does not differentiate from a deadbeat that ultimately makes things right and a deadbeat that just walks with no remorse? I thought that's what late payment fees and penalties were for.

Don't get me wrong, it's horrible that people make loan commitments and don't live up to them. But I agree with your earlier post, that it's a little sad that after 120 days there doesn't really seem to be much to fight for.