The impact on your credit score is the same for a short sale, a deed in lieu, or a foreclosure, a Fair Isaacs representative told bankruptcy lawyers at this weekend’s seminar. It is, he said, the 120 day late payments, which he presumed underlay each of these alternatives, that damages the FICO score. How the problem is ultimately resolved does not impact the credit score one way or another.
The desire to protect their credit score seems to drive the callers to my office who want to complete a short sale. They think that even if they get not a dollar from the transaction that they are banking some benefit to their future credit worthiness. I’m pleased to hear from a reliable source what I have long suspected: for a home mortgage in distress, the damage is already done.
My advice to all too many clients recently has been to live, payment free, in their over encumbered home until the foreclosure is complete. If your mortgage payments and property taxes are $3000/month, and it takes 7 months from last payment to foreclosure, that’s $21,000 you’ve saved toward new housing, health insurance or repairs to your cars.
If you contract for a short sale, you have to surrender possession at close of escrow, and find a new place to live immediately.
Remember, too, that bankruptcy can improve your credit score!
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