Does a Short Sale Show Up on Your Credit as a Foreclosure?

If you are trying to avoid a foreclosure with a short sale one of the biggest questions you may be faced with is whether or not your credit will be affected in the same way as a foreclosure. After all you are making the effort to avoid foreclosure so it shouldn't affect your credit as much, right? The answer to that can be dependent upon the state you live and the terms of your mortgage agreement, however in general a short sale can affect your credit as much or maybe a little less than a foreclosure would. You can rest assured though that a short sale does not appear on your record as a foreclosure and it does not stay on your record as long as a foreclosure would. You can expect to see a short sale fall off your record upwards of three years; however you can begin to reverse the negative effects of a short sale after the first year.

A short sale is really a catch 22 when it comes to saving your credit record. In order to be approved from your lender to do a short sale you have to prove that you have no way of fulfilling the loan agreement. In order to do this you must submit bank statements, liquidate all of your assets, and show a profit and loss statement if you own your own business. On the other hand, in order to avoid foreclosure you must remain current on your mortgage payments until the short sale commences. In this current economy this could take upwards of six months. If you are qualified for a short sale then you obviously do not have the funds to maintain your mortgage payments and therefore after six months you will be well on your way to a foreclosure.

Another drawback to doing a short sale is that your mortgage lender has the right to hold a deficiency judgment to try and reclaim the money lost in the short sale. If the judgment is upheld you may need to pay back the remainder of the loan that was not recovered in the short sale. For example if you owed $325,000 and you sold the home at a short sale for $225,000 you may still be responsible for the additional $100,000 plus any real estate fees that were assessed.

The best thing for you to do if you are in a situation is to contact a foreclosure assistance company. They will be able to assess your monthly income and debts and try to come up with a solution to help find the best solution for your situation. They will also negotiate with your mortgage company on your behalf to try and modify your loan or achieve a short sale, deed in lieu, or cash for keys.