How will a short sale affect my credit?
It depends how the short sale works out. Let say the borrower is able to get the bank to agree on a short sale and they find a buyer. Then let’s assume that the deficiency is 40,000. The bank can handle it one of the following two ways;
1) They could forgive the debt and the account on the report would show paid “for less than full balance.”
2) They could close the account and pressure the borrower for the difference in the short sale and list the account closed with a balance still owing or issue a soft note for the difference.
If the bank provides a soft note to the borrower they shouldn’t have any problem getting a new mortgage since they are being accountable to the original note.
The repositories are starting to address how to report a short sale and they should have two new classifications to handle the modified loan classification. It is unclear at this time if FICO will view these designations as derogatory but I would suspect that it will only be an adjustment from a normal paid mortgage account.