Short selling our place

[henchita]

We are in the process of a short sale, how much will this affect my credit and how long does this stay on your report?

[granny031350]

if you are already behind on your mortgage, then the initial ding on your credit has occurred.  However a short sale is a foreclosure per se and the amount you owe the bank can still report on your credit unless they agree to saying paid in full on your cr.  they can also make you pay income tax on the forgiven balance.  Now I know that there was a "law" or something aboutt short sales but I believe that it has expired

[llecs]

Ditto, in that a short sale is scored on par as a foreclosure, assuming the lender notates your tradeline on your CR as a short sale. Also, there might be an additional ding if you have any lates leading up to the short sale. These can report for 7 years, though lenders tend to zero in on the previous 2-3 years when considering future approvals. In other words, you don't have to wait 7 years to buy again. They'll also look at circumstances leading up to the short sale (e.g. move for job, econ conditions, etc.).

[StartingOver10]

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@granny031350 wrote:

if you are already behind on your mortgage, then the initial ding on your credit has occurred.  However a short sale is a foreclosure per se and the amount you owe the bank can still report on your credit unless they agree to saying paid in full on your cr.  they can also make you pay income tax on the forgiven balance.  Now I know that there was a "law" or something aboutt short sales but I believe that it has expired

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Actually in a true short sale, the lender will tell you if there is a release of lien and a release of the debt, or if there is just the release of lien only. They tell you in the approval letter they send you when your short sale is approved  Not all states have the ability to come after your deficiency, it varies so check your state's statutes. If the lender has released both the lien and the debt from you, then they are not going to come after you for the debt. Most states have a time in which to come after you for some states its limited to 6 months after the sale and others they have up to 5 yrs. Many of the short sales give a full release to the homeowner (both the lien and the debt).

As to the income tax on the forgiven amount, in 2007 the Mortgage Forgivness Debt Relief Act was passed and is valid through Dec 2012 (so it is in effect still today until the end of this year). You can look up on the IRS.gov site so you know what the criteria is as it applies to your case. Or speak to your tax professional, or both.