What is a Short Sale?
The past few years have seen an increase of a fairly new method of disposing of an upside down mortgage loan, the short sale. A short sale is essentially a settlement reached between you and your mortgage lender where they’ll agree to take less than the loan balance and consider the loan to be paid. Normally it’s reported to the credit reporting agencies as either “settlement” or “charged off.” Both are accurate because they’re an accurate representation of the disposition of the loan.
Effect of Short Sales On Credit Scores
The problem with short sales isn’t so much the short sale, it’s how they’re being marketed and represented by some real estate professionals as being better for your credit than a foreclosure. Despite what you may hear, a short sale is not better for your credit scores than a foreclosure. They’re not better for your credit scores than a forfeiture of your deed in lieu of a foreclosure. They’re not better for your credit scores than a strategic default. Fact is: short sales impact your credit in the same manner as a foreclosure, deed-in-lieu, or a strategic default would.