What are the implications of having a creditor report 'account paid in full for less than the full balance' to the credit bureau

Credit scoring is a proprietary business secret, just like the Colonel's blend of 11 herbs & spices. We can try to guess what goes into it, but we never really know, because the damage to credit from any one particular event is in proportion to the other items on your credit. Obviously this settlement will damage your credit, but just as obviously, it will be worth it to you financially to settle. The damage will be greater than a late payment or a collection, but less than a foreclosure or a bankruptcy. There's about a bizzilion legal guides here on about how to repair your credit and I would search this site to see if any of them make sense to you. Hope this perspective helps!

Paying off your second mortgage will affect your credit report. As the prior attorney said, the actual credit hit is unknown but the mark will be on your credit report for 7 years from the date of the settlement. The good thing is that there will not be any future negative credit marks concerning this debt. Right now, every month that goes by without payment is generating a negative mark on your credit. Also, under Washington law, you would be looking over your shoulder for 6 years from the date of last payment, because they could sue you. That alone is the reason to settle regardless of the credit impact. Lastly, if this was your home loan, there is a possibility that a settlement of this debt will not generate a 1099 for forgiveness of debt because there was a provision in the Dodd-Frank bill that extended the Bush tax exemption for short sales on homes. You may also qualify as insolvent under the tax code to avoid the tax. This was not a short sale so you will have to discuss the tax implications with your CPA because I am not sure if it applies on settlements of 2nd mortgages after a foreclosure.