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How does a short sale affect one's credit?

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Anonymous
Not applicable

How does a short sale affect one's credit?

I have a client who is trying to figure out  whether it makes sense to let her house go to foreclosure or attempt a short sale.
 
Her financial advisor told her she should let it go to foreclosure because if she opted for a short sale, she'd get a 1099 for the difference between what she owes and what the bank ends up selling the property for. AND of course, she'll have to pay taxes on that 1099 income.
 
I'm a realtor and my thoughts are that she should do a short pay because if she goes to foreclosure, she'll be responsible for that difference PLUS costs which will amount to much more than paying taxes (Plus you can always strike a deal with the IRS for a payment plan without it affecting your credit). The bank who holds the deed to her property isnt just gonna let her off the hook if she forecloses. They'll go after her for those fees for years and years. Also, with a short pay, the account shows up as "settled" in her credit report.
 
My question is this: How does a short pay affect one's credit score vs. a foreclosure? Is the difference significant?
Message 1 of 7
6 REPLIES 6
Tuscani
Moderator Emeritus

Re: How does a short sale affect one's credit?

Basically as bad as a foreclusure.
Message 2 of 7
Anonymous
Not applicable

Re: How does a short sale affect one's credit?

Tusc,
 
Would that be as bad as a BK? or somewhere in the middle?
Message 3 of 7
Anonymous
Not applicable

Re: How does a short sale affect one's credit?

I did a short sale in 2000.  I got approval from my mortgage company.  They issued me an unsecured loan in the amount of the difference and gave me 30 years to pay it off.  It shows up on my credit report as an installment account and the original mortgage shows paid off.  I bought another house the following month.  It did not  have a negative effect on my credit at all.
Message 4 of 7
Tuscani
Moderator Emeritus

Re: How does a short sale affect one's credit?



creditsoaring2007 wrote:
I did a short sale in 2000.  I got approval from my mortgage company.  They issued me an unsecured loan in the amount of the difference and gave me 30 years to pay it off.  It shows up on my credit report as an installment account and the original mortgage shows paid off.  I bought another house the following month.  It did not  have a negative effect on my credit at all.



You got lucky Smiley Happy
Message 5 of 7
Tuscani
Moderator Emeritus

Re: How does a short sale affect one's credit?



myhearts07 wrote:
Tusc,
 
Would that be as bad as a BK? or somewhere in the middle?



Not as bad as a BK.
Message 6 of 7
Anonymous
Not applicable

Re: How does a short sale affect one's credit?

IMHO-

Right now your client has other options.

The mortgage company does not want the house-
They will do anything in their power to keep her in the house and making a payment.
Message 7 of 7
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