Short sale is a term commonly used now which means selling the house for less than the amount that you owe to the lender who gave you the mortgage loan. The important thing to understand here is that whenever you pay a lender less than the amount you initially agreed upon the effect on your credit report is almost always negative. While the term short sale will not appear on your credit report what will matter is how the lender reports your mortgage accounts to the credit bureau. In most cases it will be reported as settled or. It is unlikely for a lender to take the money generated from a short sale which is less than the original amount you agreed upon and consider it as full payment.
When the lender reports your mortgage account as settled rather than paid it means that the creditor is writing of the remaining account as a loss or a bad debt. Some years back the amount of the mortgage that was left as a balance was considered income for the housebuyer and was liable for income tax. This code was temporarily amended to waive the tax following the economic crisis and the real estate meltdown. However whether this still holds true you will need to check with an attorney.
Settled accounts always have a negative impact on your credit report specially when the loan involved is a mortgage. Other examples of settled accounts are charged off accounts, foreclosure etc. The one thing that you can ensure is that the lender does not will not sell the remaining amount of debt to a collection agency. When he reports the account as settled it means that he has accepted take a lesser amount of money that was agreed upon and considers the matter closed. However reporting the account and is a collection account will mean that you still need to come up with the money to pay off the remaining account that the collection agency will try to collect from you. All the collection agencies are also required by the lot to report the collection accounts to the credit bureau. While even a settled account will have a negative impact on your credit report it will at least read you off your present mortgage liability. Hard choice as it may be to make it will allow you to move on and start building your credit history on a more positive note.