How is the Seller's Credit Effected By a Shortsale? By: Tim and Julie Harris 4/29/2008 9:53:26 PM Sellers will take as big a hit on their credit by going through foreclosure as giving the lender a deed-in-lieu of foreclosure. Points lost on a FICO score are as follows: Foreclosure or Deed-in-Lieu of Foreclosure Both of these solutions affect credit the same. Sellers will take a hit of 200 to 300 points, depending on overall condition of credit. This means if a seller's FICO score before foreclosure was 680, it could dip as low as 380. Short Sale The effect of a short sale on a seller's credit report is identical to that of a foreclosure. The ding on credit will show up as a pre-foreclosure in redemption status. Which will result in a loss of 200 to 300 points. This means a short sale with a previous FICO of 720 will see it fall from 520 to 420. The effect on a consumer's credit report—foreclosure vs. short sale—is the difference between being hit by a train or a bus. Here's why: Waiting Period Before Buying Another Home Foreclosure or Deed-in-Lieu of Foreclosure A seller who wants to buy another home after foreclosure will end up waiting about 36 months before a lender will offer any kind of interest rate that makes sense. Short sale A notation on a consumer's credit profile of 'settled for less than owed' (short sale) precludes the consumer from obtaining an institutional loan for 24 months, depending on the lender's program and regardless of FICO score. Fannie Mae guidelines require 24 months seasoning, and there's no way to get around this.     Short Sale/Foreclosure Deficiency Judgments The bad news is a seller could be subject to a deficiency judgment for the difference between the loan amount and the amount paid. In California, purchase money loans are not subject to deficiency judgments; however, hard money loans, equity loans and refinances are. Some other states have laws regarding personal guarantees, which could also result in a deficiency judgment, if the home owner is held personally liable for loan repayment. The lender has sole discretion whether to pursue a deficiency judgment in those instances when the judgment is permitted. To determine whether a pending foreclosure or short sale is subject to a deficiency judgment, talk to a real estate lawyer.