Short Sales and Credit Ratings

I just added this  very good article to AustinMarketInfo.com:

Will a Short Sale Save Your Credit?

I have seen ads and heard real estate agents suggest that a short sale will prevent the damage to the homeowner’s credit standing that foreclosure would cause. Not true.

As the article points out, whether a homeowner completes a short sale or loses a home through foreclosure, the mortgage lender ends up collecting less than the mortgage contract called for. Under no circumstances is this a “positive” on the borrower’s credit report, and it will impact credit scores.

In many cases, the impact of a short sale may not last as long as a foreclosure would, but even that depends on the borrower’s mortgage payment performance before the short sale, other write-off or collection accounts, renewed performance after the short sale, and many other factors that the industry considers risk indicators.

“Beware the Web …,” the article says, and that’s good advice in many areas of life. There is a wealth of information available on the Internet, but distinguishing reliable information from bad (or just oversimplified) advice is often impossible.

If you’re struggling with a mortgage and considering your alternatives, the best advice is to begin communicating as early as possible with your lender and with financial and real estate professionals. Just assuming that there’s nothing you can do is clearly a road to the worst outcome. Getting good advice early will give you the best chance of resolving a very bad situation as well as possible.