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What Is A Short Sale And How Will It Effect My Credit

As a person who’s been involved in the real estate and lending business for over 25 years this is one of the most common questions I get asked recently. This article should explain what a short sale is and how it affects the credit if some who is doing a short sale.

In real estate, a short sale is a sale of real estate in which the proceeds from the sale fall short of the balance owed on a loan secured by the property sold. In a short sale, the bank or mortgage lender agrees to discount a loan balance due to an economic or financial hardship on the part of the mortgagor. This negotiation is all done through communication with a bank's loss mitigation or workout department.
If you have been making your payments on time unfortunately the bank will most likely not even consider a short sale. There usually has to be some sort of hardship associated with a short sale, such as divorce, loss of job, or death in the family, etc: The fact that you may owe more than the property is worth is normally not enough for the bank to okay a short sale.

How will a short sale affect my credit long term?

A short sale is definitely a negative on your credit and it is up to the mortgage company how they want to state it on your credit report. It is definitely much better than a foreclosure or a bankruptcy, as those both will be on your report for 7 years. I believe many banks will report it as "account closed by account provider" or something along those lines. Yes it will be a red flag but if you can justify your hardship it will be easy to overcome in a couple years. You may even be able to dispute it and have it removed from your credit report in 12-18 months. I think this has been fairly commonplace since most of the lenders back offices have been in to turmoil for the last 2 years.
Again, the key is how the mortgage company will report it to the credit bureaus. If you are trying to do a short sale and get the lender to agree then you should monitor your credit every 60 days to see how it’s reported.
Finally, in these turbulent times, you should subscribe to a credit service that allows you to monitor your credit. There are several of these services that for an annual fee will let you know every 30 days what’s going on.

By: J Bennett

For more information on FHA loans and Short Sales please visit www.hlscorp.com

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