How long will I have to wait to get a mortgage after the short sale of my house?

Question

Our situation is a bit strange.

In 2006, my husband and I co-purchased a home with another couple, very good friends of ours. The house was supposed to be our home for approximately 5 years, but naturally after 5 years, the house was severely underwater. We all lived in it together happily for a while, but then we had babies and such and it became too uncomfortable to all live together anymore.

Our roommates moved out of state with a job offer, and we were left holding the bag, deciding what to do with the house. As it was just simply way too much house and not what we wanted for ourselves anyway (and, actually, being stuck with the entire, very expensive mortgage payment was not an option), we opted to strategically default and put it on the market as a short sale after being denied a loan modification that might've made it affordable for us to stay.

The house is still not sold after 15 months on the market, mainly because the bank keeps upping their price and rejecting REALLY GOOD offers on it, but that's another story entirely. We do hold out hope that this will end up with a successful short sale, as we only have one mortgage, and it has always been a primary residence. A few months ago, we moved into an apartment so that we have some stability for our family, and a relative is staying in the house, keeping it up.

Here's the weird bit: the mortgage never has been and still is not reported on our credit report. That means, for good or bad, it hasn't ever affected our credit score. The bank has also not asked us for any of our financial paperwork in dealing with the short sale. They don't seem to care that we were co-owners at all (I'm guessing their system just can't handle dealing with more than 2 names on a mortgage). So... What can we get away with here? I understand that filling out mortgage applications saying that you don't have any other mortgages would be fraud -- and we're not interested in cheating the system, but in the interest of long-term planning, is it likely that we will have to wait the designated 2 or 3 years after the short sale to get a new mortgage, or will the fact that it isn't reported on our credit report mean that we can, in effect, get a new mortgage anytime we want? Did we just get lucky? Or will we likely be "found out" in the long run?

Answer 1

Foreclosures and short sales both appear on one's credit report for 7 years. The impact to one's score is 85 to 160 points, so much depends on where you started. A drop from 800 to 700 won't kill your chances for a new mortgage.

But you've asked more than this. I suggest you pull a copy of you credit report, from all 3 providers. (It's free, no credit card needed.) You should see this loan on your report. You say it's not there? Have you gotten reports from all three vendors?

If not, you are in a quandary. I agree that it's not ok to lie about the short sale, but the bank might then ignore the (good) credit score once they know.

Answer 2

You will likely "be found out", but that isn't what is going on.

I read it that your house isn't actually foreclosed on yet. You are still in the foreclosure process. I don't suspect your will see anything on your report until after the deal is done. If you check your report, I bet they are just reporting you 90 or 120 days late month after month.

As to your credit score / credit report; it is just a report for the industry. You aren't really allowed to change it outside of forcing them to fix errors. (And boy, statistically speaking we all have errors on our reports.) If the bank messes up and forget to report the foreclosure, that is their problem. Please note, I don't think they have made that mistake.

However, if you borrow money or apply for any type of credit, you must be honest. It would be fraud otherwise. Some lenders might not ask too many questions, some lenders will ask a great number of questions about your credit history. (My opinion is smart lenders will distrust the credit reporting system because they know how bad they are at it.)

I am not a lawyer, but I believe you are not legally obligated to disclose what they don't ask, but for larger items like a home it is probably less trouble for you to be upfront and honest. The last thing you want after getting your mortgage approved is have them come back later accusing you of being dishonest. Even if you technically didn't break a law, there is a chance you will have to deal with a situation such as disclosing foreclosure. Better to avoid such an argument.

But for an apartment, or a credit card or other smaller use of your credit report, I wouldn't tell anybody anything they didn't ask.