Thread: Short selling and your credit.

There is no simple answer to this question. But the bottom line is that a short sale is not as bad as a foreclosure for several reasons.

Though the credit agencies say that a short sale will affect you credit score about as much as a foreclosure, the real world doesn't seem to back this up. A short sale seems to affect credit score less by at least 50 points. In addition most loan programs will lend to someoine whose had a short sale in 18 - 24 months, but for a foreclosure it is at this point around 5 years. These things can change though.

In either case, short sale or forclosure, these will stay on your record for 7 years.

With a foreclosure (depending on the state) the homeowner will usually have missed more payments so that also effects the credit score adversely.

But then there is the matter of a deficiency. When a foreclosure is done whatever amount that a lender loses they can pursue that deficiency. While the same would be true in a short sale, you can generally get the lender to waive their right to pursue the deficiency. You have bargaining power in a short sale situation, you of course have none in a foreclosure. This is a very big deal since the deficiency can often be a very large amount that the homeowner will be saddled with for years.

In a short sale you can even bargain how the lender will show the account on your credit. Normally a short sale would show something like "settled at less than full payoff", but you may be able to get them to agree to show it as "paid in full". This then has no negative effect on the credit score.

To sum up,it will virtually always be better for a persons future to have a short sale than a foreclosure.