Michael Roberts' Blog -San Jose Homes, Real Estate and Houses for Sale

Q:  Short Sale definition.  What is a Short Sale?

Answer: In ”short”, a shortsale is when the lender agrees to settle the debt owed on the property for less than the full amount of the debt. In most cases “Settled” means the lender writes off the debt. You usually will receive a 1099 after a short sale for the amount of debt forgiven. The bank is agreeing not to go after you for the money they lost by filing a deficiency judgment in the future. The exception is the HELOC loan where they reserve the right to file a default judgment.

Answer: If you have a heavy asset portfolio that would cover the amount above the home’s value then the answer is likely to be no.  Each case is different and would be better answered after a professional review to help learn how to short sale.

Answer:  There is a lot of misinformation on the internet about this. A short sale is recorded on your credit report as “debt settled for less than the amount owed”.  In plain English, this will result in a relatively minor hit to your credit compared to a foreclosure or late payments on your mortgage. A short sale will affect everyone’s credit differently. The more established your credit, the less of an impact it will have on your score.

If you stop making your mortgage payments for 4 months, regardless of whether you do a short sale or not, 4 months of missed mortgage payments will have a significant negative impact on your credit.  A short sale will drop your credit 100 points or more.

If you are already behind on your payments, you have already incurred the majority of the hit that a short sale will have on your credit.  Moving forward with a successful short sale will insure that your debt is settled with your lender.

However, if you are current on your payments and can stay current throughout the short sale process, you will save your credit to a large extent.