Can you do a short sale and keep good credit? Can you do a short sale without ever paying late?

If you are like a lot of people facing the prospect of foreclosure, you will need to think about your credit situation. If you are also facing foreclosure, a short sale is the best option to protect your credit. It does two things.

It avoids a foreclosure on your record.

And it helps prevent additional liabilty, so it lessens the chances of lenders coming after you in the future.

Short sale or short selling is basically putting your house on sale for less than the market value.  The money you'll get will then be used to pay your outstanding obligations from your lender. The full mortgage  (or mortgages if you have two mortgages) won't get paid off. They will be paid "short".

In order to qualify for a short sale you must have minimal assets. But you do not have to be on the verge of default or already in default.

You must show that you are not financially capable of continuing to pay your debt, OR, that you have to sell now and cannot sell for an amount that will pay off the mortgages.

Avoiding a noisy and annoying neighbor is not a valid manifestation of hardship. You can prove hardship if you suddenly get unemployed, divorced, sick or bankrupt.

In addition, hardships can be more subtle. If you have to move, and cannot find a buyer to pay enough to satisfy the mortgages, that is a hardship.

A short sale itself does not affect your credit in the worst way. It is reported as "Paid Settled", which is not a good report but not as bad as foreclosure, multiple lates, collections, bankruptcy, etc.

What hurts people in a short sale is what goes along with the short sale. They are often late. They sometimes have a NOD or Notice of Default filed in the public records by the lender. And this will hurt you even more than a short sale.

It is quite possible to do a short sale and keep reasonably good credit. You may not qualify any time soon for a Fannie Mae or Freddie Mac conforming loan, but you should have no trouble getting and keeping good rates on credit cards and other mortgages.

The truth is, your lender can still approve the short sale and you can get out from under while you have not ever been late on mortgage payments.

But it's not the end of the world if you get NOD. You can still opt for a short sale so you can show your lenders in the future that you settled the obligation. And you can avoid personal liability that often results from foreclosure.

Short sale is not a catch-all, risk-free solution, but it has the least negative impact on your credit report.

Mortgage lenders are not obligated to accept your proposal to short sell your property, but there's a good possibility that they will. Lenders will want to avoid long and costly foreclosure proceedings as much as possible. So it's also in their best interest to accept less than the total amount of your debt.

Learn more about short selling and avoiding foreclosure while keeping your credit.

And watch this video on short sales and foreclosures. This is a screen shot — just type in your email and I'll get you to the real video. Thank you.