Question:

Does a short sale affect your credit report?

Answer:

It depends. A short sale would affect your credit report if the lender files a deficiency judgment for the shortage. In that case, your credit will be affected negatively.

Ways Short Sale Affects Credit

If the lender accepts a short sale to completely clear your debt, your credit will not be damaged.

However, you may need to take a new loan to pay off the amount owed to the lender after the short sale. In fact, taking a new loan after the short sale and repaying it properly may improve your credit score.

If the short sale occurs during foreclosure - that is, the property is sold far below its market price, the lender will probably sue, or file a deficiency judgment. Of course, chances are the lender will take the short sale bid and be happy about it but filing a deficiency judgment is much more possible. In that case credit will be severely damaged as foreclosure will be seen on the credit report.

Having a deficiency judgment after a short sale will make you pay taxes on the amount you still owe the lender, as it counts towards your yearly income.

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