SCENARIO -- You are upside down in your current home's mortgage, and are considering trying to "short sell" your home to avoid foreclosure. Think again!

If you have been following the housing market, you are probably aware that housing prices and values across the nation are dropping due to the wave of foreclosures the market is experiencing. In fact, Fannie Mae is now "officially" recognizing the Ada/Canyon County areas as declining markets. If your area/subdivision has experienced two or three of these types of distressed sales, chances are that your home's value has fallen substantially if those distressed sales were comparable to your home.

Many people caught in an "upside-down mortgage" are being counseled to, and are considering, selling their home short of what they owe...commonly called a short sale. In order for this to happen, the seller's mortgage lender must agree to allow the home to be sold for the agreed-upon price between seller and buyer...at a price that is LESS than what is owed on the mortgage.

The problem that is happening is the misconception that "short selling" your home will not hurt your credit. That may be true if you just look at your credit score, but not necessarily true when you talk mortgage qualification.

The potential problem lies within how the mortgage lender will report your "short sale" to the credit bureaus. As a seller, you may not have ever been late on your mortgage payment, and you may have had a lender that gave the green light to allow you to sell your home short of what you owe. After your home's short sale closed, your tradeline on your credit report shows a $0 balance and account closed. However, many lenders are adding a note line to the closed tradeline that reads something like this...

"Mortgage closed short of balance due"

OR

"Short sale approved by lender"

While those lines seem harmless enough, you have no control over how your next lender will treat that short sale. More and more, lenders are looking at short sales in the same light as foreclosures. Even though the circumstances are very different, the core of the issue is the same...you have a homeowner who is unable or unwilling to meet their mortgage obligations under the promissory note they signed.

Mortgage credit is the only type of credit in this country where you have to have an established, good credit history in order to qualify. Need a credit card...any 18 year old college freshman can get one with ABSOLUTELY NO CREDIT HISTORY. Automobile loan...ever heard the advertisements stating, "Bad credit, no credit, NO PROBLEM!" It's not the same with mortgage credit. New conforming loan guidelines state that a foreclosure must be five years seasoned (four years with extenuating circumstances) before you can qualify for a new conforming mortgage. By selling your home short of what you owe, you will run the risk of having a future potential mortgage lender cast your credit report in the same light as that of a foreclosure. Make sure that is a chance you are willing to take because five years is a LONG TIME!