Facing foreclosure? You may have heard that one way to protect your credit is to do a short sale.
A short sale is a transaction where the lender allows you to sell your house for less than your loan amount. For example, if you owe $200,000, your lender may agree to let you sell the property for only $150,000 and be willing to forgive the difference. In some cases, since you can market it for less than its worth, this would allow you to sell your property quickly.
If the lender considers this transaction paid satisfactorily, it won’t hurt your credit score. However, if the lender reports this sale as “settled for less than the full amount due” it will negatively impact your score. Be sure to check with your lender before you enter into a short sale to find out how they report “shorts” to the credit bureaus.
Another possible impact is that the IRS views unpaid debt as income and will tax you on the forgiven amount.
Short sales can absolutely help you out of a bad situation, just know the facts before you enter any transaction and determine if its the best solution for you.
Have you been through a short sale? What’s been your experience?
