Short Sale of a House & How It Affects Credit
While a short sale's affect on your credit is often dependent upon the lender, the damage to your credit has often already occurred by the time the lender agrees to short sale terms.
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Short Sale
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In a short sale, a lender agrees to a sale of a property for less than the amount of the outstanding balance of the loan against the property. Lenders who are loath to acquire real estate and the associated upkeep costs find short sales more attractive than foreclosures.
Credit Reporting
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The way a lender chooses to report a short sale to credit bureaus will determine the affect that the short sale has on your credit report. If a lender reports the short sale simply as debt satisfied, the damage to your credit report is nil, but if the lender reports it as a settlement for less than loan value, it appears as a defaulted loan amount.
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Damage Done
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By the time a lender agrees to a short sale, the damage to the credit report is often done.
Lenders often will not agree to a short sale until borrowers are already in default and it appears that foreclosure is imminent; at that point, the loan is already past due, and the missed payments have been reported to credit bureaus and have become part of the borrower's credit history.
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