A short sale occurs when the proceeds of a debtor's real estate sale fall short of the balance owed on the property's mortgage. Usually this happens when the debtor can no longer pay the mortgage loan on the property and the creditor decides to sell the property at a moderate loss, rather than pressing the debtor and risking bankruptcy or foreclosure. An advantage to the short sale process is that it is typically faster than a foreclosure and avoids the steep bank loans. The debtor usually remains obligated to pay the deficiency, or the remaining balance of the loan, unless settlement is clearly stated on the acceptance of offer.
Because short sales are a form of debt settlement, they have a negative impact on a debtor's credit report. Like all other entries except bankruptcy, short sales can remain on a credit report for the duration of seven years. It is possible to obtain another mortgage within one to three years after a short sale, depending on the debtor's other credit information.
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