Reverse Table Funding

Exactly how long is a short sale on your credit report?  My realtor said 2 years, but I would like to know for sure how long it stays on your credit report.  And do you know how much it affects your credit score? I’ve heard 40pts to 200pts…Thanks

Keri

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Hi Keri,

That is a complicated question.  For one, there are many different ways a lender can report a completed short sale and secondly, the effect on a credit report will vary depending on how the lender reports the short sale and the general appearance of the homeowner’s credit report prior to the short sale.

Let me share with you the best case scenario, one in which the homeowner obtains a full release of liability. 

A homeowner decides he or she can no longer afford the home.  They find a buyer to purchase the home at a discounted price (less than the present balance owed).  The homeowner and buyer have been educated on the process and utilize the buyer’s mortgage company to assist in obtaining the short payoff from homeowner’s lender.

The buyer’s mortgage company enters into an agreement to purchase the homeowner’s present mortgage loan through a transaction called ‘reverse table funding’ which involves an assignment of mortgage and endorsement of note at closing using the funds from the new buyer’s mortgage.

Buyer buys the home and obtains a mortgage loan through buyer’s mortgage company and the closing statement lists buyer’s mortgage company as the originating lender and also lists the buyer’s mortgage company as the lender that is being paid off.  Again, the reason the buyer’s mortgage company is listed as the lender that is being paid off is because this is a ‘reverse table funding’ transaction.

Here’s the best part.  The seller’s mortgage loan was transferred to the buyer’s mortgage company and subsequently paid.  This means the mortgage tradeline should report on the seller’s credit report as ‘transferred’ with a zero balance.  If it does not, then file a qualified written request post closing to correct the erroneous reporting.  Ok, I was wrong about the best part.  Here’s an even better part.  The buyer’s mortgage company, that became the seller’s mortgage company through ‘reverse table funding’, does NOT report to the credit bureau and so no short sale is reported at all.

Thanks for the questions and hope this helps.

Paul

This author is not an attorney and this information should not be considered legal advice.  Please consult an attorney for legal advice.