You know the old saying, "A rising tide lifts all boats?" Well, apparently the reverse is also true, at least for some property owners who opted for a short sale to avoid foreclosure. Through no fault of their own, their credit report now includes a foreclosure that never was.
You've heard this litany before: When the housing market fell, many who owned homes or income property found themselves upside-down, as in they owed more on their mortgage loan than the home was worth due to plummeting housing values.
The solution for those without other options was unpleasant but obvious: short-sell the place, take your loss and move on.
Just one catch: when these same short-sellers applied for a mortgage loan to purchase another property, they found that their bank had reported their short sale as a foreclosure.
Is it tough to get a loan when you've got a foreclosure on your record? Would Charlie Sheen make a terrible therapist?
As Bankrate's Real Estate Adviser Steve McLinden notes, a short sale could ding your credit score by 100 points and take two years to repair, while a foreclosure can drop it 280 points with a five-year repair window.
Whaddya gonna do?
First, if you're just lining up your short sale, request a letter from your mortgage lender that states how the account will be reported to the credit bureaus. An account labeled "paid in full" or "legally paid in full for less than full balance" will reassure future lenders while "foreclosed" assuredly will not.
If you only discovered this important error after the fact, contact your lender and the three major credit bureaus – Equifax, Experian and TransUnion – to make sure they correct the mistake. And as a precaution, be sure to monitor your credit report annually to make sure this error doesn't return to haunt you.
Ever found yourself with a ghost foreclosure on your record? Were your efforts to correct the error successful?
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