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Benefits of a Short Sale vs. Foreclosure


When trying to decide whether to go with a short sale or foreclosure, you have to factor in the benefits of a short sale vs. foreclosure. With the economy experiencing a downward spiral that does not seem to be ending very soon, a lot of homeowners are now considering foreclosing on their homes because they cannot simply make their mortgage payments. In addition, because of the stress that homeowners go through on a daily basis, some just choose to go with foreclosure, something they wouldn’t have made if they were better informed of the benefits of a short sale vs. foreclosure. Although foreclosing and just walking away seems to be the only answer to their mortgage woes, it is not the only solution, nor the best solution. There is also incentive programs from $3,000 cash back to held suede home owners to choose the more beneficial option of short selling.

Benefits of a Short Sale vs. Foreclosure: What is a Short Sale?

When talking about the benefits of a short sale vs. foreclosure, it is important to define what a short sale is. In layman’s terms, when you agree to a short sale of your property, you are sure that your house will be bought, but not necessarily at the price that you would like to sell it. A short sale is one of the most recommended alternatives for homeowners who no longer have the capability of paying off their mortgage due to various reasons, instead of foreclosure or declaring bankruptcy. You can see the reasons for the increasing popularity of short sales listed below, in terms of the benefits of a short sale vs. foreclosure.

Benefits of a Short Sale vs. Foreclosure: What is a Foreclosure?

Foreclosure is the process by which creditors like banks and mortgage companies among others, take away your property as payment for your debts. Typically, homeowners choose foreclosure because they cannot keep on paying their mortgage or various taxes on their property. When you choose to foreclose on your home, you will lose all legal rights to the foreclosed property.

Facts on the Benefits of a Short Sale vs. Foreclosure

  • Your Credit History

Arguably, one of the main appeals of short sales in terms of the benefits of a short sale vs. foreclosure is that

making a short sale will not negatively affect your credit history. Once a property is sold, the creditor usually

reports a short sale as either ‘paid as negotiated’ ‘paid’ or, ‘settled in full.’

On the other hand, when you foreclose, it will stay in your credit history for up to ten years. Additionally, your county’s public records will have this information permanently.


  • Your Credit Score

Although a short sale will still have an effect on your credit score, it will only normally be around 50 points maximum. Late payments negatively impacts your credit score however and is around 30 points or over.


With foreclosure however, more than 300 points may be shaved off your FICO score. Likewise, it will stay in your credit history for at least ten years and will usually result in a deficiency judgment.

  • Deficiency Judgment

As stated above, a creditor has all the right to file a deficiency judgment with a foreclosure. On the other hand, as with most short sale cases, creditors typically don’t pursue deficiency judgment.


  • Deficiency Amount

Although your asking price for your home may not be commensurate to its actual market value when you make a short sale, it is definitely higher than a foreclosure leading to deficiency. The deficiency however is almost always relinquished by creditors.


However, if your home is not sold in an auction for foreclosed homes, it directly goes through the REO system of banks. In terms of the benefits of a short sale vs. foreclosure, this can result in a deficiency judgment that is higher than normal, plus your property may take a longer time to sell.


  • Your Present and Future Employment

Because a short sale isn’t really counted as an ‘item’ on credit reports, as previously mentioned it will not negatively affect you credit score, which also means that it will not negatively impact your present and future employment opportunities.


On the other hand, foreclosing on a property can significantly affect your present or future employment. In terms of present employment, employers typically check their employees’ credit history and if they see a foreclosure, some companies re-assign or fire employees with bad credit history. Harsh but sadly true. The same goes for future employment.


  • Potential Loan Capability

When applying for a mortgage on another property, you are not legally required to state in applications that you made a short sale. However, when you apply for a mortgage after a foreclosure, you are legally required to disclose that information which will lead to higher interest rates.


  • Potential Fannie Mae Primary Residence and Non-Primary Residence Loan

After two years following a short sale, you may be qualified to apply for a Fannie Mae loan for both primary and non-primary residence. On the other hand, you have to wait five, to as much as seven years, to qualify for a Fannie Mae loan when you foreclose on your home.


  • Rent

While on the process of a short sale, you are not required to pay rent since majority of short sales only take three months to a year at most. Homeowners also stop paying their mortgage payments while in the process of a short sale.

As you can see from the list of benefits of a short sale vs. foreclosure, a short sale is more ideal and more beneficial to you. In addition, it is understandable that homeowners may feel embarrassed when faced with financial difficulties, and would want to keep their hardship as private as possible. This is eliminated with a short sale since a short sale is private as opposed to foreclosures, where creditors more often than not post ‘foreclosed’ signs on your home for everyone to see.

So why wouldn't you choose to short sale? Stop foreclosure now and contact a short sale specialist to assist you in your short sale package today!




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