What is a Short Sale? How does it work and will it hurt my credit score?
Wednesday, March 31st, 2010
A Short Sale is when you sell your home for less than what you owe on it. This can be great if you need Relief from a large mortgage payment. There are some tax and credit implications that are important to consider. For example, if you owe $500,000 on your home and it’s only worth $300,000, if the Bank agrees to short-sale, then you will ultimately get a 1099 for Debt Relief income for $200,000. This can be forgiven on your Federal Taxes, but don’t expect the financially destitute state of California to necessarily be so generous. Of course, your credit score will take at least a slight hit for doing a short-sale, but you can really minimize the damage. Avoiding a 90-day late payment on your mortgage(s) prior to the account being settled in the short-sale could allow you to recover your credit score completely within 6-12 months. If you’re one of the lucky few who can get a short-sale completed without having to be late on your mortgage, then you’ll only see a small drop in your scores. This is a far better alternative to Foreclosure, where you are not in control at all and it’s likely your credit score will get buried so far in the sand that it will take years to recover.
TIP: Don’t go 90 days late under any circumstances. Avoid Foreclosure like the plague.
Derrick Evens
Mr Credit San Diego
858.571.0271
AskMrCredit@yahoo.com