There have been a lot of horribly misleading “news” articles out there that purport to be warning people about the dangers of mortgage fraud.  Yes, there are a lot of bad people out there who are looking to take advantage of people in distress, but they represent only a tiny fraction of the investors out there, most of whom are just looking to make a living by helping people solve their problems.  In reality, all these “articles” are doing is smearing an entire industry of people who are out there trying to help homeowners out of trouble and save the banks a few dollars.

 One of the main arguments made by these good Samaritans in the media is that investors make the misleading claim that Short Sales are just as bad as a foreclosure on a person’s credit report.  While this is true that Short Sales do in fact have as bad an impact on a person’s credit score as foreclosures and that they are not any better off having completed one – the arguments made are completely misleading.  There are three main errors in this claim.

1. Many times Short Sales are not reported to the credit bureau as “Short Sales”.  Sometimes they are reported as “satisfactions” or “settlements”.  This makes a huge difference because a reported “satisfaction” of a loan has a much better impact on a credit score than a “Short Sale”.

1. If a person goes through a foreclosure, they still owe the bank the difference between what the bank can sell their house for and their loan balance plus all penalties, fees, and costs to sell.  Often the bank then sells the debt to a collection agency that harasses the person until the debt is paid.  However, most times when a Short Sale is successfully completed, the loan is completely satisfied.  That means their entire debt is wiped clean.  If you are not able to achieve a full satisfaction, just be honest and notify the homeowner.  They are not any worse off than if the bank had just gone through with the foreclosure.

1. Yes, Short Sales have a negative impact on a person’s credit score.  BUT when it comes to getting new financing on another home, a Short Sale is looked at much more favorably than a foreclosure.  In fact, Fannie Mae and Freddie Mac have just changed their rules so that a person who has successfully completed a Short Sale is eligible to receive new Fannie Mae/Freddie Mac financing just two years later.  If they had a foreclosure on their record, they would have to wait 5-7 years before they could get financing to purchase a new home.  So while a Short Sale might affect someone’s credit score just as much as a foreclosure, it could save them 3-5 YEARS when they try to get new financing on a new home!  The news articles never seem to mention that part.

There are a lot of people out there who masquerade as journalists but are just looking to cash in by exploiting the fears of their readers.  Other times, they are genuinely decent people with an incomplete grasp of a subject who are looking to help but end up doing more harm than good.  To be a successful Real Estate Investor in these turbulent times, you need to be informed on all of the issues that impact your business, both locally and nationally.  That way you can refute all of the fear mongering and lies that are out there.