I have a home that I am selling and the amount offered will not cover the full pay off. Does a short sale show up on your credit report? If it does does it hurt you credit score?
The short sale, in and of itself, won't show up. When the mortgage holder tries to collect the balance from you, and you don't pay it, THAT will show up. And yes, it's gonna hurt.
The terms of the short sale are subject to negotiation. If the property values are still potentially going down, the holder of the mortgage may be willing to waive the deficiency or reduce it, and perhaps to report the transaction as something not quite as bad as it actually was ... perhaps report the deficiency as less than it was or not report the deficiency at all. Forgiven mortgage deficiencies for residences may not necessitate 1099-c forms under recently changed tax laws, which is a blessing. So if you're short selling, negotiate for the best situation you can. Keep in mind that because of securitization, often the trustee of the mortgage pool doesn't have the authority to spend the money to pursue deficiencies, however the trustee will likely sell the deficiency to a JDB and the JDB may at some point sue for the deficiency. Depending on state law, the JDB may need to bring the original note to court in order to win anything other than a default situation ... or the JDB may need a lost note affidavit (which may be defective for any number of reasons) ... further, the OC's membership or non-membership in MERS may be crucial (MERS members are not permitted to use lost-note affidavits, and non-MERS members typically will not be able to retrieve the original note). All of which is a long-winded way of saying that by the time anyone mounts a deficiency lawsuit, the claim will have been through enough hands and enough time will have passed that a competent defense will defeat it because its documentation will be faulty.
How would I not be able to pay the balance when the buyers close? I would think that the buyers and myself would not be able to complete the closing with out paying off the balance. Is this an incorrect thought?
If you're bringing enough cash to the closing to make the bank whole, that's not a real "short sale" (although it feels like you took it in the shorts). In a true short sale, it is the lender that agrees to take less than the payoff of the loan (in order to avoid the vagaries of foreclosure proceedings, the costs of holding the property in its OREO inventory, and the effect on the ratios that it must maintain in its accounts for regulatory purposes). In some cases, the borrower remains on the hook for the difference (the advantage for the borrower in that case is that the amount is fixed and that the borrower is relieved of further responsibility for the condition of the property and what have you). In other cases, a forgiveness of that difference is negotiated.
I do not plan on having the amount to totally pay off the loan so I would have to negotiate a short sale to complete the closing. Is that correct? I can't just go to closing and the loan come up short of pay off and say I will pay it off later.
You're correct that you cannot do this as stated. You need to negotiate with the mortgage holder(s) to allow the short sale. This needs to be settled before the closing. This shold also be settled prior to any Purchase & Sales Agreement being entered in to. As flacorps stated, there are many reasons why a lender would agree to allowing a short sale.
