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<< return to Qualifications for a Short Sale
According to sources in the mortgage industry, people who agree to a short sale with the lender do far less damage to their credit rating than those who go through foreclosure.
Both a short sale and a foreclosure will negatively affect your credit rating. A foreclusre appears on credit reports as: "debt discharged due to foreclosure".
Credit experts report that a bankruptcy is the worst thing for your credit report. The next worst thing is having a foreclosure on your credit report. A Foreclosure will reduce your credit score by over 250 points. It may also take up to three years to qualify for a mortgage.
A Short Sale appears on credit reports as: "pre-foreclosure in redemption". The Short Sale may reduce your credit score by 100 points or less. After the sale of the property is completed, the mortgage's status on your credit report may change to "discharged". Even though you have gone through a Short Sale, you may also qualify for a mortgage loan within 18 months.
In the future, when you apply for another mortgage, you are required you to disclose a prior foreclosure. Having to do this greatly affects mortgage rates that are offered to you.
After a Short Sale is successfully completed, the lender will receive all of the proceeds from the sale, this is usually not enough to completely pay off the loan. The remaining balance of the loan is discharged. A homeowner that goes through a short sale should get legal advice to protect themselves from future claims of the lender.
Sometimes only the primary mortgages are fully discharged. If there are second or third mortgages (home equity line of credit, refinancing, etc), the homeowner can be held responsible for repayment in the future. This is why you should consult an attorney and make that the lender agrees to fully discharge all mortgage debt involved in the short sale.
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