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The Curious Bag
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If your home is worth less than the amount of your mortgage and you cannot continue making the payments, you may request that your lender approve a short sale. A short sale, however, can damage your credit rating.
Facts
In a short sale, a lender allows a borrower to sell his property for fair market value. It then forgives the additional amount that the borrower owes beyond the sale price.
Considerations
The higher your credit score is when the short sale takes place, the greater the damage to it.
Features
A short sale is reported on your credit report and has a negative effect on your score. In addition, your original mortgage loan will update as "settled" after the short sale. A settled mortgage loan will be viewed as derogatory by future lenders.
Time Frame
Both the public record of the short sale and the original mortgage account will appear on your credit report for seven years following the short sale.
Warning
You will be required to pay taxes on any portion of the loan amount that was forgiven by your lender. If you are unable or unwilling to do so, the unpaid tax debt will be inserted into your credit file causing even further damage to your credit.
Source:
AOL Real Estate: Understanding Short Sales
Cardreport: The Fair Credit Reporting Act (section 605)
SmartMoney: Taxing Consequences of Short Sales
More Information:
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