What we have found is that this question is one that is difficult to find a solid, across the board answer to!  The fact(s) are as follows, the "exact" impact is really unknown, and the answer is a two part answer. FACT #1: EVERYONE's credit file is completely different.  Therefore, every little aspect is calculated differently.  FACT #2: The true value of the FICO scoring equation is "top secret".  If we knew the exact formula, we would all have perfect credit scores! (850 is a perfect credit score). 

Here is what we have been able to decipher, from what is going on "on average".  The effect of a pull on one's credit score is usually anywhere between 2-10 points for a "hard" inquiry.  Hard means the first time someone fills out a mortgage application and inquires about being qualified for a loan.  Anytime ANYONE looks at your credit to establish any line of credit, that is classified as a "hard" inquiry.  This could be for a mortgage loan, car loan, bank loan, credit union loan, etc.  Here is where some other aspects come into play, so being smart if you are shopping around for a better rate, will help you gain access to the most information with the least impact on your overall score---A mortgage "hard" inquiry, theoretically, is on file for 30 days and covers that time period.  So, technically, one could have their credit pulled for an initial inquiry and then shop around for a better rate and as long as the "shopping around" is done within 30 days, all of those subsequent pulls will only count as that ONE, initial "hard" pull!  A consumer could walk into a mortgage company, complete their application, walk out the door and go to another mortgage company, have their credit pulled again, and again, and again, over and over for the next 30 days, and it would only count as being pulled ONE TIME!  Something to keep in mind as you look for the best rate that you can get, when it comes time to financing a home.  Car loans are the same way but the time period is only 5-10 days, as opposed to 30 days for a mortgage.  A "hard" pull is also one that stores do when they entice customers to open a line of credit at a department store or something along those lines.  Those do affect your credit score and those pulls will show on your credit report and lower your score, if only by a few points.

There is such a thing as a "soft" pull as well.  A "soft" pull is one like a bank may do to open a checking account, or that an insurance company may do, just to make sure that the consumer is up to par and to check for credit card interest rates.  Those types of pulls are considered "soft" pulls, and do not affect your credit score at all.

Click the link above to view the video we created to explain the Craigslist Scam that we discussed in one of our December blog posts.

http://www.youtube.com/user/AllStarsRealty?feature=mhum

Did you know?

http://www.trulia.com/blog/taranelson/2010/12/5_things_to_do_now_to_sell_in_2011?ecampaign=cnews201012C&eurl=www.trulia.com/blog/taranelson/2010/12/5_things_to_do_now_to_sell_in_2011

by: Aaron Edwards, All Stars Realty, Memphis, TN

Recently we have been hearing more and more feedback from our clients telling us about a suspicious phone call, e-mail, or even a letter that they have received regarding the purchase of their home.  These homeowners are, unfortunately, in "Short Sale" situations and are being contacted about a proposed "option" to avoid foreclosure.  Unfortunately the glimmer of hope for instant relief doesn't actually exist, and it is one of the most fraudulent practices going on in the real estate industry today.  With the holidays being upon us and sellers already being in desperate situations (having to short sale their home), con-artists are pulling on the heartstrings of the owners and their need for quick resolution to their plight and the opportunity to get money in their pockets.  

Here is how the scam works:

The homeowner is contacted by an individual/investor whom they have never met, we will refer to this person as the 'buyer' for the rest of this explanation.  The 'buyer' states that they have cash to pay the seller for their house and that they (the 'buyer') will negotiate the sale with the bank, on the homeowner's behalf.  In order for the 'buyer' to negotiate with the bank they will need the homeowner's personal information including bank account info, social security number, financial statements, pay stubs, monthly bank statements, all of the things required for a legal short sale.  This is where the fraud begins.  The 'buyer' makes the purchase of the property contingent on a few conditions.  (a)The 'buyer' submits a low ball offer to the bank, knowing full well that the property is worth far more than what they are offering.  Lets say that the 'buyer' offers the bank $50,000 for the subject property, that is easily worth $100,000 @ fair market value.  (b)While the bank is doing their due diligence to find out if the offer is acceptable or not, the 'buyer' is also marketing the property to new/real buyers at a higher price than what they have offered for the property, while they negotiate a LOWER price with the bank.  (c)The final and perhaps most crucial contingency is that the 'buyer' will ONLY purchase the property if BOTH of their sides of the transaction can close simultaneously (same time, same place).  So in essence, what the 'buyer' has done is that they have purchased the property for far less than market value while at the same time selling the property for much closer to market value.  They have given the bank $50,000, knowing that the house was worth closer to $100,000, they have then turned around and sold the property (at the SAME time) for $70,000, pocketed the $20,000 difference and ripped off the bank to the tune of $20,000.

How does this effect the original homeowner?

It is the duty and responsibility of the homeowner/seller and their agent to mitigate as much of the loss, to the bank, as possible.  If the house can sell on the market for $100,000.00, then it is the seller's and agents lawful duty to sell it for as close to $100,000 as possible.  Most everyone has heard the real estate term "Flipping" as it relates to buying/renovating/re-selling a property, and the negative connotation that now exists relating to that word.  The practice described in the fraud above is referred to, in the industry as "Flopping".  Flopping is the act of profiting from the devaluation of a property rather than an increase in value of the property. It effects the homeowner b/c they are "participating" in the process and have not made an effort to return the "highest and best" offer to the bank, thus limiting the amount of loss on the sale of the property. 

How does the 'buyer' contact the seller?

Sellers/homeowners are usually contacted via a letter in the mail, an e-mail, or even a phone call.  In the case of a phone call, all the 'buyer' has to do is perform a reverse-lookup for the phone number for the specific property.  Most of the information needed to make initial contact is a matter of public record.  Homeowners who will be foreclosed upon, soon, are published in classified ads in publications around the country.  It doesn't take a whole lot of effort to discover a property that is in jeopardy, or a homeowner in need of assistance.  The people who prey on desperate individuals know where to find potential takers for their 'bait'.  As a general rule, if you have your house on the market, as a "short sale" especially, always contact your agent about any letters you receive regarding the purchase, sale, or even foreclosure of your property.  A good agent is worth their weight in gold when it comes to keeping clients out of trouble.  Always check to see what advice they have for you if you think a solid, viable option comes along to help you sell your property.  Chances are, if the idea didn't come from your agent, it may just be "too good to be true".

On 11/23/10, a local Memphis news station aired a news story about a citizen who found an online listing about renting a property.  She viewed the property and pictures on a well known real estate website and immediately fell in love with the house and began to see herself and her daughter living there.  When she called the number listed in the ad, all she got was a recording pointing her to an email address.  She used the email address for correspondence with people that she thought were the property's owners.  Turns out that it was a scam and they got an amount of money out of the victim for what she thought would be the first month's rent and a security deposit, via money order.  They "owners" told her that they had just been relocated overseas for work and as a result, would not be able to meet her face to face (RED FLAG).  Also, upon their receipt of the deposit and first month's rent, she never received keys to the property and was asked to send more money (RED FLAG).  At this point, she knew she had been taken for a ride.

Apparently, these con artists look up the names of property owners in public records.  They then assume the "identity" of the rightful owners, through electronic correspondence by signing the emails with the rightful owners names (again, this information is all a matter of public record).  They use pictures of the property that were posted online when it was for SALE or was legally listed for rent.  By doing that, they are able to pass the property off as vacant and ready for move in.

As a general rule, never send money to someone that you have never met face to face.  Don't buy or rent a property that you have not been able to gain access to in order to view in person.  A little caution on the front end can save a lot of money on the back end.

For homeowners it would be wise to periodically perform online searches for your property address.  See what kind of results you get.  If you see anything that raises a red flag, contact authorities and inform them of the situation.  Again, a little caution on the front end can save a lot of anguish on the back end.

NOTE:  To view the actual news piece that was aired, click the link below:

http://www.wreg.com/news/wreg-new-wrinkle-in-rental-scam-story,0,7219764.story

Short Sales are the “norm” in today’s Real Estate market.  Unfortunately, many agents are taking them on without really understanding what to do with them and without ever having received proper education about how to successfully navigate the Short Sale process. 

Some of the toughest questions facing homeowners who are delinquent on their mortgage payments is “when should I do something?” and “what are my options?”.  Look no further, we are here to help!  If you are two payments (or more) behind on your first or second mortgage, the time to act is NOW.  Contact a CDPE (Certified Distressed Property Expert) in your market and schedule a free, private consultation TODAY!  I include the following statement(s) as a sort-of disclosure: be prepared to answer some tough, personal questions, and answer them honestly.  Your agent is going to have to get down to the bare bones of your situation in order to best advise you of your options as well as to help identify which option is best for you.  You should also be prepared to hear some honest answers.  This is no time for sugar coating things or telling half-truths.  Tough questions need to be asked and tough questions need to be answered in order to do what is best for you.

Keep in mind that the market is what the market is.  We don’t control it.  All we can do is try to read it and give you the best advice on what your home will sell for today.  You may not like what we have to say, but it is reality.  We can’t change it overnight, but we are working to improve the market one successful transaction at a time.  Get your property listed as soon as possible, even if it is listed as a Short Sale.  The long term damage to your credit report is far greater with a foreclosure than it is with a Short Sale.

When you are ready to put your house on the market, make SURE that you hire an agent with some credentials who is experienced in working with Short Sales.  Once listed, your Realtor will take over the responsibility (and frustration) of negotiating with the bank on your behalf.  There are a number of Short Sale designations.  We, at The Driver Team, are CDPE (Certified Distressed Property Expert) agents.  My husband Bob and I were the first agents in Memphis to receive the CDPE designation, in 2008.  Since then we have helped hundreds of distressed homeowners through successful “Short Sales” thus allowing them to move on with their lives and start rebuilding both their lives and credit.  We attend annual CDPE seminars and participate in monthly conference calls with agents from all over the US in order to stay up to date with the ever-changing market.  If you are behind on your mortgage payments, time is of the essence.  You simply cannot afford to wait until tomorrow to ask for help.  We can help, we are willing to help, and we want to help, YOU.  

With the real estate market being what it is today, investment opportunities are at an all time high while purchase prices are at an all time low.  A side by side comparison of the real estate market to the S&P 500 shows that from 1969-2009 Residential Real Estate has shown only 3, out of 40, years with negative appreciation in value, while the S&P has had 11, out of 40, years of negative appreciation.  Add to that, that the max loss in Residential Real Estate was only 13% while the max loss in the S&P was 38% and you start to see why Investing in Real Estate is a smart move!

http://www.smartmoney.com/personal-finance/real-estate/sizing-up-a-short-sale/

RISMEDIA, June 30, 2009-(MCT)-Question: How long will a foreclosure or bankruptcy show up on your credit report?

Answer: A foreclosure can be reported on your credit report for seven years from the date the foreclosure was filed in the court, according to Gerri Detweiler, author of “Reduce Debt, Reduce Stress.” The book is $14.95, and an ebook is available at www.ReduceDebtReduceStress.com.

Bankruptcy, she said, legally can remain for 10 years from the date you filed - not the date of discharge or when the bankruptcy is completed. However, credit reporting agencies have agreed to voluntarily remove completed Chapter 13 filings - where someone pays off part or all of their debt under a court-supervised plan - seven years from the date of filing.

The idea is to give consumers some credit for having paid back as much of their debt as they could afford to pay back.

What happens with a short sale? Or an arrangement in which the lender allows the homeowner to sell the home for less than the mortgage due? Detweiler noted that a short sale may either be listed as a charge-off or a debt settled for less than the full balance. Both remain on your credit report for seven years from the date that action occurred.

©2009, Detroit Free Press.
Distributed by McClatchy-Tribune Information Services.

RISMedia welcomes your questions and comments. Send your e-mail to: realestatemagazinefeedback@rismedia.com.

Related consumer tips and topics on RISMedia.com:

Tips for Getting Patio Furniture Spruced Up for Summer 
Have We Reached Bottom? 10 Factors to Consider 
Luring First-time Buyers - 5 Tips to Beat the Competition, Sell Your Home

http://rismedia.com/2009-06-29/how-long-will-a-foreclosure-or-bankruptcy-affect-credit/#ixzz0KVmCxdJe&D

The link is for an article written by Sid Kirchheimer, author of Scam-Proof Your Life, published by AARP Books/Sterling.  One thing to focus on from this article, is in the sectoin about KNOW THE REALITIES, and it says that "under federal law, debt remains in a credit report for about seven years; bankruptcies stay listed for 10 years.  And it's illegal in many states to accept an advance payment for any debt-adjusting service".

http://bulletin.aarp.org/yourmoney/scamalert/articles/credit_repair_s_dirty_business_.html

Alternatives to Foreclosure

You may be facing foreclosure…so what are your options?!? Try to look at the situation more from a financial standpoint rather than an emotional standpoint. This way you can more successfully analyze which option might best suit your needs and desires to move you towards resolving your financial difficulty. One very important thing to remember: Time is of the essence. Take time to think through your situation and make a decision. Then, take action right away so you have enough time to complete the solution you choose.

Options When Facing Foreclosure

1.      Do Nothing – If a homeowner does nothing, they most likely will lose their home at foreclosure auction.  Loan applications generally ask if the applicant has ever been foreclosed upon. Credit reports also disclose this damaging information. Not the best option.

2.      Payoff/Refinance – Completely paying off the entire loan amount plus any default amount and fees. Usually this is accomplished through a refinance of the debt. New debt is at a normally higher interest rate and there may be a prepayment penalty because of the recent default. With this option, there should be equity in the home.

3.      Reinstatement- Pay the entire default amount plus interest, attorney fees, late fees, taxes, missed payments and fees.

4.      Loan Modification – Utilizing the existing mortgage company to refinance the debt or extend the terms of the loan. This may allow the homeowner to catch up at a more affordable level. To qualify, you must prove to the lender you have fixed the problem that caused the late payment.

5.      Forbearance – Lender may be able to arrange a repayment plan based on the homeowner’s financial situation. The lender may even be able to provide a temporary payment reduction or suspension of payments. Information will be required from the lender to show that you are able to meet the new payment plan requirements.

6.      Partial Claim – A loan from the lender for a 2^nd loan to include back payments, costs and fees.

7.      Deed in Lieu of Foreclosure – Give the property back to the bank instead of the bank foreclosing. Banks generally require the home be well maintained, all mortgage payment and taxes must be current. Most loan applications ask if this has ever happened.

8.      Bankruptcy – This option can liquidate debt and/or allow more time. I can refer you to a qualified bankruptcy attorney.

 --Chapter 7    (Liquidation) To completely settle personal debt.

 --Chapter 13  (Wage Earner Plan) Payments are made toward a plan to pay off debts in 3-5 years.

 --Chapter 11  (Business Reorganization) A business debt solution.

9.      Sale – If the property has equity (money left over after all loans and monetary encumbrances are paid).  The homeowner may sell the home without lender approval through a conventional home sale. In this case, the homeowner will get cash from the sale.

10.  Short Sale – Also known as a pre-foreclosure sale, can be negotiated with your lender by your Real Estate Professional if what is owed is MORE than the property’s value. You receive NO MONEY.

I have read this form and understand that I have several options available to me and that there may be more than those listed above. I have been advised that I should consult an Attorney and CPA.  I have chosen to use Bob & Rita Driver of Re/Max All Stars to assist me in negotiating the short sale of my home.

_________________________________________________    _________    

 Name                                                                                                                      Date                  ________________________________________________________      ___________         

 Name                                                                                                                      Date

The Driver Team

Bob & Rita Driver

2845 N. Houston Levee, Suite 103

Memphis, TN 38016

901-387-1199

901-387-1070