The few reported short sales that I have seen have appeared as “Paid Settlements” on a mortgage account. In the wake of the current mortgage crisis, short sales are becoming extremely common, but legislation has not caught up with the tidal wave and there is no law on the books relating to them to date. As a result, there is an opportunity for you to negotiate credit reporting with the lender. I’ve seen several successful negotiations.
In my opinion doing a short sale in San Diego proves that you have exhausted every effort to pay the loan. You have willingly committed to take on months of emotional and physical stress in a good-faith effort to sell the property to maintain a good relationship with that lender. Most likely, the reason you can’t afford your current mortgage is because you were in an adjustable product and your mortgage payment has doubled. That doesn’t mean that you can’t afford a different loan program with a lower payment. Which leads me to wonder what the incentive is for lenders not to negotiate with the borrower on how the item is reported to the bureaus. All they would be doing is cutting off a pretty substantial future income stream if they put these types of borrowers out of the market for two years. In that light, negotiation for a non-report on short sales is well worth it.
Here are their options in preferred order:
- Paid As Agreed – Won’t hurt the score at all as long as the borrower has kept payments current.
Unrated – May drop a few points. - Paid Settlement – Credit score will drop 50-150 points.
If reported, the item will remain on the credit report for 7 years from the completion date or the settlement date.
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