Short Sale - Will I be able to buy another house?

We recently received some clarification regarding the affects of a short sale on a borrowers ability to get a new mortgage and thought we’d pass it on:

A short sale or short payoff is a transaction where the mortgage lender agrees to accept a lower amount than is owed on the property. If a you or someone you know is in this situation, it’s important you/they understand the following:

As long as the following conditions are met, most likely they will be able to obtain a new mortgage immediately:
· The mortgage on which the short sale or short payoff occurred was not delinquent; and
• The minimum mortgage payment history requirements are met, which generally means no 60 late payments in the 12 months prior to the credit report date; and
· The borrower is not obligated to repay any amount associated with the short sale or short payoff, including a deficiency judgment.

Indications of a short sale/short payoff include (but are not limited to): a 1099 from the mortgage lender, or the word “settled” noted on a mortgage line or large trade line of the credit bureau.

If these conditions are not met, then most likely any prospective new lender will consider the transaction to have been a “Pre-foreclosure sale”, which will mean they will not lend to this borrower for a minimum of 4 years.

We’ve heard stories of borrowers being told to simply stop making their mortgage payments all together, and want to make folks aware of the potential ramifications. Certainly, there are those who are more versed in the “art” of negotiating a short sale with the lenders than we are, and perhaps negotiating one without being delinquent is difficult. But, if it is at all possible, it will most likely put a borrower in a better position if they can get through the short sale having met the conditions noted above.

Should you have any questions about this information, please feel free to contact us. We’d be happy to discuss it further.