NEW PORT RICHEY, Fla. — When his home’s value plunged, George Albright opted to sell it for less than he owed, believing the ‘‘short sale’’ would scar his credit less than a foreclosure.
But after saving for a down payment and building back his credit, the single father learned he still wouldn’t qualify for a new loan. After two years in the penalty box, underwriters said, he still had five years to go.
To his surprise, his credit history showed a foreclosure, a ‘‘kiss of death’’ stemming from a strange credit quirk. Banks and credit bureaus have no special code to report a short sale.
Without the distinction, homeowners who won the bank’s approval for a short sale of their underwater home are seen as no different than years-long defaulters who ended in foreclosure.
Loan and credit experts call this oversight one of the biggest challenges for today’s short sellers.
‘‘They’re very frustrated and sad and disillusioned by the whole thing,” said Joe Gendelman, Florida director of the National Credit Federation, a Tampa credit-restoration firm.
When hopeful borrowers ask for loans, their credit histories are run through automated underwriting systems that assess whether they might pose a risk to the lender.
The systems follow guidelines from mortgage giants Fannie Mae and Freddie Mac that suggest foreclosed borrowers should wait seven years before receiving a new loan. Short sellers, guidelines said, could qualify in two years.
But without a specific credit code for short sales, the distinction between waiting periods is lost. Homeowners who went through the short-sale process, finding buyers and winning bank approval, are penalized exactly like defaulters who walked away.
Credit agencies said the label is correct in portraying a mortgage gone wrong: whether short sale or foreclosure, the loan was unpaid. But some said the mistaken message began at a level outside their control, perhaps in the credit-reporting system itself.
‘‘Where we have found the discrepancies occurring is in the underwriting process, and codes are being misinterpreted somewhere during this process,’’ Experian spokeswoman Kristine Snyder said. ‘‘This is a concern to us, and we are currently working to learn more about the issue and how it can be remedied.’’
Messages left with the Consumer Data Industry Association, which developed the credit-reporting system, Metro 2, that serves as the industry standard, were not returned.
No one tracks how many short sales have been reported as foreclosures, though RealtyTrac data show more than 2 million Americans have completed short sales since the housing bubble burst.
The missing code was barely an issue before the bust because short sales were so rare.
Banks have begun approving short sales more and more because they are cheaper and less of a hassle than foreclosures.
Short sellers must prove a hardship, like a lost job, medical ailment or divorce, to escape their debt, and even then some are hounded by judgments to pay back deficiencies.
Short sales leave lasting credit scars, hurting sellers’ ability to qualify for everything from car leases to credit cards. But they also allow sellers to leave bad loans behind without seeing their homes repossessed.
Credit experts disagree over what lenders can truly learn from a few bad years during the recession. Clifton O’Neal, a spokesman for TransUnion, one of the big three credit bureaus, referred on Friday to a report that said ‘‘short sales are, in fact, indicative of future elevated credit risk.’’
But a TransUnion report in 2011, Life after Foreclosure and Hidden Opportunities, said ‘‘life event’’ defaulters who missed loan payments during the recession ‘‘are otherwise good credit risks,’’ whose short-term woes were not symbolic of some larger economic flaw.
Blacklisting short sellers could dent the housing market as prospective buyers remain sidelined by rejection. Terry Clemans, executive director of the National Credit Reporting Association, said the lack of a distinct code hurts lenders and credit agencies, too, by obscuring the full picture of a prospective borrower’s past.
‘‘It skews the ability down the road to properly document what really happened, and when this consumer should get back in the market,’’ Clemans said. ‘‘The sooner the system is changed to properly document the difference . . . the better.’’
The only solution so far, Trinity mortgage broker Pam Marron said, has been to turn to short-term fixes.
Responding to questions over how it processes the cases, Fannie Mae issued a clarification in March saying its underwriting system could not identify short sales ‘‘with 100 percent accuracy’’ as long as no short-sale code was in place. Lenders, it said, would need to check whether the ‘‘significant derogatory event’’ was a short sale on a case-by-case basis.
Some borrowers have cleared the scarlet letter by petitioning their banks to certify the short sales in letters to the credit bureaus. But brokers said the process is slow, inconsistent, and far from a long-term fix.
Potential solutions, like a form letter for banks to certify borrowers’ short sales, have gained ground among regulators, Marron said.
But for now, borrowers like Albright, who has worked for more than six months to clear his record, will have to keep renting and waiting to sign the loan for a new home.