Choosing between a short sale and foreclosure is a difficult decision for homeowners. The deal a lender is willing to accept should be considered, as well as how the matter will be reported to a credit bureau. A short sale is generally a better option for protecting credit ratings and may offer more leniency for moving. However, in limited situations, foreclosure may be chosen to postpone homelessness. Both options have negative consequences, and it is up to the individual to determine which one causes the least harm.
Deciding between a short sale and a foreclosure is one of the most difficult decisions any homeowner may have to face. One thing that can make that decision easier is to consider the deal a lender is willing to accept. If a pre-foreclosure short sale is a possibility, it is almost always to the borrower’s advantage to make that sale.
The most important feedback when choosing between a short sale and a foreclosure will be what the lender is offering. Specifically, a borrower should ask how the matter will be reported to a credit bureau. If the lender is willing to list the debt as paid in full, this will not be a mark against the borrower. However, if the lender marks the debt as paid off for less than the amount owed, there will be negative consequences on the borrower’s credit. Regardless of what the lender is planning to do, it must be put in writing before the borrower makes a decision.
These negative consequences will not be the only determining factor in choosing between a short sale and a foreclosure. Even such a credit designation is not as bad as a foreclosure. Therefore, in most cases, a short sale will generally be a better option for those looking to protect their credit rating as much as possible.
Another issue to consider when choosing between a short sale and a foreclosure is the terms the borrower would like to leave. If you participate in a short sale, the lender may offer some leniency to move, giving the borrower the freedom to move at a more convenient time. A foreclosure will not grant the borrower such forbearance. Once the foreclosure is processed, the borrower will have to vacate the home, usually within 30 days.
There may be some limited situations where an individual cannot choose a short sale and risk foreclosure. For example, some borrowers may feel they will be able to get the money, but it may take until the last minute to produce it. In some cases, the borrower and her family simply have nowhere to go. In the face of homelessness, a foreclosure may seem like a better option, simply because it will postpone the situation for as long as possible.
Both short sale and foreclosure have some negative consequences for the borrower. It is up to the individual to determine which one can cause the least harm. In most cases, this will be a short sale. In the end, both decisions put the borrower in the position of losing the house.
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