How will a shortsale affect my credit?

Question

Just wanted to know what to do as my house is up for foreclosure on november 7th. It has been one headache after another trying to get rid of this house and I wanted to know if a shortsale would be a better alternative to foreclosure. Thanks

Answer 1

A short sale is only an option if the lender will agree to it. The lender may agree to the sale with the stipulation that you agree to repay the shortfall or they may simply agree to accept less than they are owed and report that they have done so to the credit bureaus.

If you are already in foreclosure, your credit is about as bad as it can get, mortgage delinquencies have a greater negative affect on credit than almost anything else.

You will be ineligible for mortgage financing through traditional credit routes for some years now.

Answer 2

It sounds as if you've alreayd talked to an investor about selling the house?

A short sale won't affect your credit, however, the late payments will still be on there. When the lender agrees to a short sale, they're agreeing to write off that debt at a discount and release you from all obligations.

Now there are things to consider. Lenders have been starting to issue 1099 forms for the deficiency, meaning that come tax time, it shows up as taxable income. You'll need to make sure whoever is buying the house asks the lender about deficiency judgments. Still, that's better than a foreclosure on the credit.

I you do have a buyer, then you need to really get moving and have that sale stalled. Our experience with lenders is that they move VERY slowly and typically have no real interest in helping homeowners. Depending on the lender, it can take months to negotiate a short sale, or as little as a week.

Answer 3

It would definately be better. It may not affect your credit at all, you have already had the notice of default filed, so the short sale shouldnt hurt it any more. Foreclosure scares just about anyone from giving you credit for years. I suggest finding a realtor in your area that knows how to handle a short sale and get it done. Sometimes the bank will even give you like 500 bucks to help you move or with other expenses. I have actually seen short sales show on credit reports as full payoffs. It just depends on how they are reported.

Answer 4

The first Tuesday of next month is not that far away.... Has your mortgage company already told you they'd wait for you to do a short sale? Even after you have the house under contract, your mortgage company will want to see the settlement statement (HUD-1) and tell you at that point if their net is enough to allow the short sale. Do remember, that Joe S is correct in stating that the IRS will see the "forgiven amount" as income to you in the year it was forgiven. Good luck with it.

Answer 5

It will not hurt your credit, a forclosure will. I believe that if you are facing a forclosure, then short selling is the best option. Not only will you get a huge hit on your credit, you will owe the IRS taxes on the remaining part of your mortgage, as our great Uncle Sam sees this as income.