Short sales coded as foreclosures hurt credit - WFLA News Channel 8

Short sales coded as foreclosures hurt credit

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For a distressed homeowner who owes way more on a mortgage than a home is worth, a "short sale" can be a ticket out of foreclosure.

A short sale occurs when a bank allows a home to sell for less than you owe, then writes off the rest. It's supposed to be a black mark on your credit for just two years, instead of the usual seven years for a foreclosure.

"The benefit of entering a short sale agreement is that you'll be able to re-enter the housing market a lot quicker than having a foreclosure on your credit," said Joe Gendelman, of National Credit Federation in Tampa.

Gendelman said he's working with dozens of clients who went through short sales, but then found a foreclosure listed on their credit years later.

The problem is bank and credit bureaus have no special code to report a short sale, so when a new lender checks your credit, it often shows up as a foreclosure.

So thousands of Bay area homeowners who completed short sales years ago are now having trouble buying another home, or even a car.

"Forty percent of homes in the state of Florida are under water.  So, it really creates a mountain that if people need to sell for some reason, many times they would have to be forced to do a short sale," Gendelman said.

Mortgage Giant Fannie Mae, which underwrites mortgages, says it's in the process of changing its computer system so that short sales are flagged.

In the meantime, experts recommend you ask for a letter from the lender who approved your short sale. That way, you have proof, if you need it.

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