Credit Implications
A short sale negotiation resulting in a reduction of the amount a borrower owes towards a debt acts as a type of settlement or renegotiation of a borrower's debt. Should the creditor report the debt reduction to credit reporting agencies, it can adversely affect a person's credit report. Despite significant misreporting on the topic, damage to one's credit due to a short sale is really no different from that of a foreclosure. After a short sale, borrowers may find it difficult to obtain a new mortgage because lender's underwriting guidelines might reject lending to a borrower who has obtained a short sale in the past. As of 2011, national and state laws and industry standards for both real estate sales and lending are in an ongoing and rapid state of change. Borrowers interested in pursuing a short sale should consult first with a HUD-approved mortgage counselor for up-to-date and specific advice as it applies to their situation. Also, borrowers need to obtain up-to-date information from multiple professionals, including an accountant, an attorney, and a real estate broker—all of whom should be specialized in loss mitigation and should be licensed to practice in the state where the real estate is located.
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