Effect of Short Sale and Mortgage Re-Modification on Credit Scores

Short sale is a term that is used by creditors to describe a situation where the mortgage borrower sells off the house for a sum of money that is less than what he owes the creditor.  The phrase short sale does not appear anywhere in your credit report.  The effect of a short sale on your credit report is almost never good but the degree of impact depends upon the state of your credit prior to the short stay.  When you do a short sale on your house the mortgage lender has two options.  He can consider the money he receives as full and final payment and consider the credit account closed.  The second thing he can do is to sell off the remainder amount of debt to a collection agency in which case you will still be liable to pay the remaining part of the debt.  In the case where the creditor accepts the money from the short sale as full and final payment he will report to the credit bureau the account as paid and closed but not paid in full.  It is extremely unlikely for the lender to forgive the rest of the amount and report your account has paid in full.  Whenever a lender reports an account as not having been paid in full it has a negative impact on your credit report.  In the second case when the remainder amount gets sold off to a collection agency not only will the lender report your account as being settled rather than paid but he will also be liable to make further payments to the collection agency for the remainder amount of debt to stop the collection agency also report their accounts to credit bureaus and the remainder amount of credit make it reported as a collection of power to credit bureaus.

The second option open to someone who is unable pay off the mortgage loan is mortgage loan modification.  Depending upon your circumstances you may be eligible for mortgage loan modification under the federal government is making home affordable programme.  Under mortgage loan modification program your lender changes the terms of your loan to allow lower payments with a low rate of interest thus enabling you to remain in the mortgage and stay in your home.  A loan mortgage program begins with a three-month trial period.  Once the modified payments are made regularly of the first three months to mortgage loan modification program can be made effective.  If you’re mortgage payments prior modification program were current they will continue to be reported as current.  However if they were prior delinquencies than those delinquencies will stay on your credit report for a period of seven years.  Once the trial period is over and the mortgage loan modification program has been put into effect your account will be reported to the credit bureaus as modified.  As to how a loan modification program affects the credit score is yet unclear.  There hasn’t been enough time to document the payment performance of those going through the modification process to determine if changes need to be made to the credit scoring models.  It is unsure how to include this element in the calculation of the credit score till the time that more data is available.  Establishing a history of strong credit management with on time payments is the best way to ensure a long-term credit worthiness and good credit scores.

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