Will A Short Sale Hurt My Credit Score?

When it comes to avoiding the foreclosure process, one popular alternative to getting out from under a mortgage is through a short sale. In a short sale, your lender allows you to sell your home for less than what is still owed on the mortgage. While this would normally leave a deficiency balance that you would be responsible for, the major advantage of a short sale is that the lender will typically agree to waive that deficiency. While it doesn’t allow you to keep your home, it will help you avoid the consequences of a foreclosure.

Of course, there are downsides to the short sale process. The real question is: are those downsides an improvement over losing your home through foreclosure?

A Short Sale Will Affect Your Credit Score

Put simply, a short sale will harm your credit score. It is worth noting that in most cases the damage a short sale causes to your credit score will be less than that of a foreclosure. In many cases, the negative impact can be noticeably less.

Some real estate agents have noted a FICO score drop from a foreclosure approximately two or three times as large as the drop from a short sale. However, there is data to suggest that for some homeowners, the effect on your credit score will be approximately the same whether you opt for a foreclosure or a short sale. The study by Fair Isaac found that a short sale will typically result in a 200 to 300 point drop in a FICO score – the same drop found after a foreclosure. These numbers are not conclusive, and it is always a good idea to discuss your options with a short sale attorney to understand the impact any decision you make could have on your credit score.

Other Methods Of Foreclosure Protection

A short sale is not the only way to defend against the possibility of a foreclosure. There are other avenues that can not only stop your foreclosure but potentially keep you in your home as well. These options include:

  • Bankruptcy – Declaring either chapter 7 or chapter 13 bankruptcies is one of the most common ways to halt a foreclosure. Thanks to what is known as the automatic bankruptcy stay, your mortgage lender will be required to halt all collection activities against you as soon as you file your petition.
  • Foreclosure Mediation – The U.S. Bankruptcy Courts have in recent years developed another option that involves resolving a defaulted mortgage without the need for a bankruptcy filing. This program, known as the Mortgage Modification Mediation Program, allows for the parties to negotiate an agreement outside of the formal confines of a bankruptcy proceeding.
  • Loan Modification – One option that is available inside or outside bankruptcy is a loan modification. Loan modifications involve you and your lender re-negotiating the terms of your loan to give you a chance of keeping your home. It can involve lowered interest rates and even potentially forgiving missed payments.

Speak With A Las Vegas Short Sale Attorney Today

A short sale can be complicated. To have your questions answered, contact the Nevada short sale attorneys with Vohwinkel Law today.

contact our firm

Contact our firm
Contact Us

Vohwinkel Law

Vohwinkel law has provided las vegas valley residents superior case results relating to personal injury, bankruptcy, foreclosure and more! Contact us today!