How Long Does a Short Sale Stay on a Credit Report?

by Mack Mitzsheva

A mortgage loan permits you to buy a home with financing if you don't have the cash on hand to pay for it outright. Of course, the mortgage loan must be repaid. Depending upon your situation, a lender may agree to a short sale of the mortgaged property. A short sale occurs when the lender allows you to pay less back than you owe on the mortgage loan because the home is worth less than the amount you owe. This short sale information is generally reported to the credit bureau and will appear on your credit report.

Fair Credit Reporting Act

How long information remains on a credit report is governed by federal law. Under the Fair Credit Reporting Act, negative account data, such as a short sale, remains on a credit report for up to seven years, according to Equifax, one of the major credit bureaus. After seven years, the credit bureaus automatically delete this data from your credit file. If you had late payments on the mortgage loan prior to the short sale, those late payments will also remain on the report for seven years from the date they occurred.

Credit Reporting

Although a mortgage lender may report short sale information to the credit bureau, the phrase "short sale" does not appear on the credit report, according to Experian, another major credit bureau. Instead, the lender reports that the mortgage loan was "settled" for less than owed. A settled account is a very negative item to have on a credit report, according to Experian. Settled accounts tell other lenders that you did not honor your financial obligation to pay the full amount of the debt you owed.

Negotiations

How a short sale is reported to the credit bureau depends upon the negotiated agreement reached by you and the mortgage lender. Most short sales are reported as settled accounts. However, the lender may agree to report the mortgage as "paid." If it does, this will prevent the negative affect of having a settled account appear on your credit report. Plus, if your payments were made on time before the short sale and the lender reports the loan as paid instead of settled, your credit would not be negatively affected by the short sale at all, according to Experian.

Considerations

If any information concerning the short sale is reported inaccurately on your credit report, you have the right under the Fair Credit Reporting Act to have those mistakes corrected. You can file a dispute with the credit bureaus online, via mail or over the phone. The bureau then has up to 30 days to investigate and make corrections. You can receive a free copy of your credit report from each of the three major credit bureaus once a year at AnnualCreditReport.com. The site permits you to view your credit report online or you can request to have it sent to you through the mail.

About the Author

Mack Mitzsheva is a tax lawyer, personal finance expert and the author of the forthcoming ebook, "10 Best Places to Work Online." Mitzsheva is also a social media entrepreneur with five successful sites under her belt. Always innovative, Mitzsheva is currently developing a cutting-edge budgeting app for newlyweds.

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