THE DESTRUCTION OF CREDIT
In the case of property foreclosures, REO’s, Short Sales, A Deed in Lieu of Foreclosure and bankruptcies, has many people thinking that once their property has been sold or taken over by a lender that they are through with the property and are therefore free from any further responsibility. Nothing could be farther from the truth.
In the case of a Short Sale, most lenders have the former owner sign a note that obligates them to repay the lending institution the amount of money they have forgiven the borrower. If that amount happens to be $30,000 then that is the amount of the note. Additionally, the IRS looks upon that same $30,000 as income to the borrower, thus incurring a tax obligation. There is some question as to how forcefully the lenders and the IRS will enforce these items but lenders are requiring signatures on notes from the borrowers that they have helped.
Included in this mine field is the credit worthiness of the borrower. The lending industry considers the time it takes to be able to qualify for a new loan after losing a property, based upon two broad criteria, hardship or, mismanagement. That is the difference between minimum and maximum. How long it will take to be considered for a new home loan are as follows:
Minimum Maximum
Short Sale 2 4 years
REO’s 3 5
Deed in lieu of
Foreclosure 2 4
Foreclosure 3 5-7
Bankruptcy 2 4
The above must also be declared on applications for credit in perpetuity. All of the above reduces credit scores substantially. The Fed is urging lenders to be lenient with borrowers in this troubling time. As a result, these present guidelines are being interpreted often. These same guidelines may be more lenient, or harsher, one year from now.
Don Schaller
Broker Owner
Schaller Family Real Estate
Dickson Realty, Truckee
