Short Sale Credit Rating Q & A

Q: Hello. I am wondering what a Short Sale will do to my credit report? I have two properties and can’t pay for one of them anymore.

Janice Ann Monaco

A: Hi Janice,
Yes, a short sale will affect your credit rating. Typically when you come to a agreement with the bank on short sale you stop making mortgage payments, in most cases once you have a 120 day late payment on your credit report with your mortgage company, HUD and most lenders consider that a foreclosure. If you can sell the property fairly quickly in this market and avoid those late payments it can be beneficial. In most cases I don’t see the advantage for the homeowner. I personally think the only person it benefits is the realtors pocketbook.

Mike Clover your resource for free credit report repair, credit reports, credit cards, and loans.

11 Responses to “Short Sale Credit Rating Q & A”

  1. Anonymous says:

    Oh please Mike,

    A short sale in and of itself, while impacting the credit score, need not be as significant as a foreclosure.

    Then there is the other considerations. For instance if the homeowner that is facing the short sale or foreclosure should want to buy a house in the future, their choices for financing will be severely limited and very expensive for the next 5 -7 years for foreclosure or a deed in lieu of foreclosure. Whereas in an approved short sale the time needed to go by goes down to 2-3 years and without the strict lending requirements that a foreclosure required, such as a minimum FICO of 680.

    There are some real reasons to consider mitigating the future impact to your family’s living conditions before one opts for foreclosure over a short sale

  2. Credt Guru says:

    Oh please mike, Lets look at the FACTS. When you start the shortsale process, do you not stop making payments on the mortgage ? The answer is yes. I would advise calling HUD, and aksing them. Here is there number, 1-800-CallFHA (1-800-225-5342).They will tell you once you have a 120 mortgage late payment they will consider that late payment just like a foreclosure.So I still dont see the benefit.

  3. Anonymous says:

    Good afternoon…

    I’m not sure if this is the proper forum to address this question; however, here it goes. I presently have a credit score around 800; however, am finding myself in need of a short sale. I have never missed a payment and throughout the short sale process, will remain current. My financial institution has approved a shortsale and I have agreed to a $25K note.

    I realize my credit score will take a hit; however, for how long? I’m not worried about buying a new house in 2-3 years – I’m more focused on how long it will take to recover my score to be eligable for other means of credit?

    Any informed opinion would be greatly welcomed and appreciated :-)

    Thank you,


  4. Credt Guru says:

    Hi Eric,
    As long as you are not late on your mortgage payment the shortsale process will not affect your credit rating. Your credit score will only be affected if you have late payments. I believe it would be safe to say you can buy soon after the shortsale process. The only problem you might have with a lender is why you did a shortsale to begin with and decided to buy right afterwards. In other words it might make more sense to buy a little later down the road. Like a year a later or so. Not to say that you could not buy shortly after depending on the reason for the shortsale to begin with.

  5. Anonymous says:

    Credit Guru – Thank you for providing with input so quickly. Are you saying that basde on what I described, there should be little to no impact on my credit score? Doesn’t the shortsale cmoe with a derrogatory public record on my credit score? Is it simply a matter of the derrogatory public record is typically accompanied by several missing or late payments (i.e. the derrogatory public record isn’t the credit score reducer, the missing / late payments are)?

    My focus in the next 12-24 months is buying a new car, not a new house?

    Once again, thank you for your rapid response…


  6. Credt Guru says:

    As long as you dont have any late payments you should be fine. All you did is sale the house for less than balanced owed. Your credit score is affected by late payments, how much debt you have vs allowed credit limit, how long you have had it, and how much new credit you have. A shortsale will not be a public record, public records are info such as bankrupticies, judgements,and tax liens, the shortsale will be reported by the creditor but should not affect your credit score. If you are looking to buy a car you should be fine, these car lots look mainly at your credit score, which should not be affected, as long as you dont have late payments and any other negative information reporting.

  7. Anonymous says:

    I am currently in the same situation as Eric. My first mortgage agree to proceed to a short sales but my second mortgage company is giving hard and would like me to pay $16000 in order for them to give a satisfactory mortgage. Otherwise they will send me a deficency judgement and their recovery dept will contact me after the sales of the house. According to them the second option will even be possible if I contribute something. I told them that I do not have any money to give them and they told me my FICO score is 772 therefore I can borrow money somewhere else and pay them the $16,000. I am trying to get out of debt not to put myself into more dept. Do you thing If I accept to contribute $1000 with deficiency, it will hit my credit? I would like to know because I don’t want them to come after me asking me to settle something while they already messed up my credit. Please advise.
    Thank you for in advance for your help.

  8. Anonymous says:

    Credit Guru…

    I’d love to know you were correct about the short sale (with no late payments) option not negatively impacting credit score. I am in a similar situation as Eric… just waiting on the final “investor” approval for the short sale. My understanding is that the notation on the account will be “settled” or “paid as agreed” instead of paid in full. Can you tell me what the impact is for that single notation?

  9. says:

    Yes, the creditor will report it settled for less than balance owed. This can affect your credit score. But it will not be that big of a deal. What is a big deal is late payments. Typically the bank will tell you not to make payments. My apology saying it will not affect your credit score, because it will since the negative remark of settled. Nether less as long as you make payments on the mortgage during this process, you will be fine for a quick recovery.

  10. Anonymous says:

    From My own expericance

    Don’t agree to pay promisery note to your lender, refuse to sign and they will waive it. Tell them you have no money and say NO

  11. Anonymous says:

    I short sold my home January 2008. My second took a hit and I was not required to pay back the loan. I do have a negative reporting a CO (charge off) as well it is on the negative portion of my credit report. In addition this will not come off my credit report until 2013. The first who was paid in full "forgot" to check the box that didn't ding my credit (was making 1/2 payments for 6 months". I am now showing 60 days late. That to will come off in 2013.

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