Short Sale Vs. Foreclosure Credit

Short sales, like foreclosures, have a considerable negative impact on your credit.

Short sales are an alternative to foreclosure in that they allow homeowners to sell their homes for less than the property's fair market value. The lender retains all of the sale proceeds. Like foreclosure, short sales present a significant credit risk for consumers.

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Misconceptions
- Many consumers opt for short sales rather than foreclosure because they mistakenly believe that a short sale will damage their credit rating less than a foreclosure. Craig Watts of the Fair Isaac Corporation states that shorts sales and foreclosures have a virtually identical negative impact on consumer credit scores.
Effects
- When a mortgage lender sells a home for less than the loan balance, it may sue the debtor for the remaining amount owed if the practice is legal in the debtor's state. This results in a judgment and damages credit even further. Short sales allow homeowners to negotiate against a subsequent judgment and further credit damage, whereas foreclosures do not.
Considerations
- Although both a short sale and a foreclosure may reduce an individual's credit rating by as much as 300 points, a foreclosure can prevent him from obtaining a new mortgage loan for two to five years. Short sales, however, do not carry this automatic restriction.