In our last post, we got into the details of a short sale. So now that you understand what’s involved with a short sale, let’s take a step back and look at the bigger picture. In other words, should you consider a short sale if you’re heading down the path of foreclosure? In many cases, the answer is yes, you should consider the short sale option in lieu of foreclosure. The trick is getting the lender to go with it, then getting the buyer. That’s why you’ll see real estate ads that say “short sale approved”, because it tells potential buyers that they are getting a good deal.
So why is a short sale better than a foreclosure? Short sales can hit credit scores by 200-300 points, sometimes even less or not based on certain circumstances. Foreclosures can be anywhere from 300-400 points, and as you probably know, that extra hundred points can make a big difference. One important thing to remember is that lenders are the ones that report short pay offs / short sales to credit bureaus. If you’re lucky (and you can always ask a lender to do this, though it’s up to them to comply), the lender may not even report it to the bureau. If that’s the case, then your credit doesn’t necessarily get hit, and you still get out of the loan/property. Not bad, right?
Here are some other things to consider. Most of the time, short sales are only applicable if you’re already in or near default status. However, if you have negotiated a short sale because of a significant life change but you’ve made your payments up to that point, then your credit hasn’t necessarily taken a hit. In other words, you can pull out and still buy a home later. Keep that in mind when weighing the pros and cons of short sale vs. foreclosure, because foreclosures require you to wait 5-7 years to buy a new home.
Also, you’ll find that plenty of official paperwork in different walks of life will inquire about whether or not you’ve gone through a recent foreclosure or bankruptcy. You’ll notice, though, that hardly any of these documents mention the term “short sale”. In other words, you might be able to get out of this without a significant ding on your record. And in a worst-case scenario, the overall hit to your credit (and official notices) are less than a foreclosure.
So the simple answer is yes, if you can, do a short sale. The trick is finding an agent who can broker the whole thing for you.
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The views published here are the opinions of the writer and are not a substitute for legal counsel.
