The current trend in the marketplace
is focused on the impact of foreclosures across the country. This trend
has resulted in various opinions on the types of foreclosures (Short Sale, Deed
in Lieu and Foreclosure) and its impact on a borrower’s FICO® score.
This topic, which is raised in news articles and other industry collateral,
has generated many questions among
members of our various sales channels; mainly, how score models calculate each
type of foreclosure. After soliciting assistance from various individuals and
resources—including each of the three major credit bureaus and CreditXpert
—we have compiled the following information for your review.
While many people have associated a target point impact anywhere from 100 points
on a Short Sale to 280 points on a foreclosure, Fair Isaac has told us that
FICO® risk scores do not distinguish between the three types of foreclosures.
There are so many variables in a consumer’s credit report (do they have
collections or other public records?) in addition to the foreclosure account
that a point impact is almost impossible to gauge. Further complicating the
score prediction is how the foreclosure account is reported, and if a public
record accompanies it.
Each article we’ve seen suggests that a Short Sale has less of an impact
on an applicant’s FICO® score than a Foreclosure, but downplays the
fact that there could be legal action taken by the lender on the deficiency
balance from a Short Sale. If this is the case, there would then be both a derogatory
trade line and a Public Record reporting. This is the same result as a Foreclosure;
a derogatory tradeline plus the Foreclosure Public Record. Even without the
Public Record filing there would still be the reporting of an MOP 8 on the Short
Sale tradeline. This would have a negative impact on the applicant’s score
equivalent to a foreclosure tradeline.
Finally, Short Sales are typically facilitated to those applicants who have encountered credit issues. These issues would be reflected in the derogatory reporting of other credit items within the consumer’s credit profile.
Princeton Capital does not provide legal advice; therefore, this information
is not intended, or should be perceived, as offering legal counsel to our customers.
However, there seems to be a considerable amount of incomplete or inaccurate
information on this topic in the marketplace.
Princeton Capital is a Residential Mortgage Lender, Licensed
by the California Department of Corporations, license #415-0027, and the Oregon
Division of Finance and Corporate Securities, license #ML-2847. Equal Housing
Lender. ©2008 Coldwell Banker Real Estate LLC. All Rights Reserved. Coldwell
Banker¤ is a registered trademark licensed to Coldwell Banker Real Estate
LLC. An Equal Opportunity Company.
Equal Housing Opportunity. Each Coldwell Banker Residential Brokerage Office
Is Owned And Operated by NRT LLC.
Foreclosure: An owners right to their property is terminated,
usually by default. Property is purchased
back by bank or public auction (sheriffs sale). Proceeds of public auction applied
to mortgage debt. Most
states will zero out deficiency balance.
Deed in Lieu: An owner avoids foreclosure by voluntarily surrendering
their property by deeding to the
lender as satisfaction for the debt. Deed in Lieu allows the lender to take
possession sooner than would
be possible through formal foreclosure.
Short Sale: A short sale typically is executed to prevent a
home foreclosure. A short sale is nothing
more than negotiating with lien holders a payoff for less than what they are
owed, or rather a sale of a debt,
generally on a piece of real estate, short of the full debt amount.
for more information, call Daniel Pizano at (408) 460-8401
go back to the foreclosure page