How to Minimize the Impact of a Short Sale on your Credit
You can dramatically minimize the impact of a short sale on your credit by continuing to make your payments during the short sale process.
The primary impact of a short sale comes from the missed payments, not from the short sale itself. This is why you will often hear people say that a short sale and a foreclosure are similar as far as the impact on your credit. This is because the lead-up to the short sale or the foreclosure is the same, assuming the borrower is not making payments during the short sale. In other words, in both cases, the borrower misses multiple payments, the lender files a Notice of Default (NOD) and in some cases, a Notice of Trustee Sale (NOTS), although the NOTS is postponed in a successful short sale.
If, however, the borrower keeps current on their payments during the short sale process, they will see no negative impact on their credit. “Debt settled for less than the amount owed” is the way a short sale is reported, and it has no impact on the borrower’s credit score.
Note: I have seen many instances where a borrower with good credit (i.e. mid to high 700′s or higher) does a short sale and keeps current during the process and does not incur any negative impact on their credit score.
So, if you want to minimize the impact of a short sale on your credit, keep making your payments during the short sale process. In addition, be sure you hire a listing agent who is extremely experienced in short sales so that they can negotiate a short sale approval with your lender despite the fact that you are current on your mortgage payments. At The Battiata Real Estate Group, we have done hundreds of short sales for clients who have never missed a payment or been behind on their mortgage payments.