SHORT SALE PROS vs. FORECLOSURES CONS

Short sale sellers are widely seen as less risky than foreclosed sellers. Fannie Mae recently adjusted their guidelines to dictate only a two year waiting period for a short sale seller to buy another primary residence, while they extended the waiting period for foreclosures to five years.

For the seller, a short sale provides the opportunity to avoid foreclosure and the dreaded implications that a foreclosure brings, in addition to being able to return to home ownership sooner; alternately, the lender receives most of the value of the loan sooner, and avoids incurring additional legal or carrying costs while the foreclosure process plays out, which can sometimes even take years

Short sales have a far less damaging affect on a seller's credit report. Credit scores typically lose between 80 to 100 points. Without a doubt sellers will incur more damage on their credit report by going through foreclosure. Typically your credit score will take plunge between 250 to 300 points.

In a foreclosure the lender can get a judgment against you for the deficiency you owe plus the costs for the foreclosure action.

Insurance premiums, for the home, car, health care can be increased, as well as more difficult to obtain due to negative credit due to foreclosure.  

Credit cards, car loans, installment and revolving credit lines will be more difficult to obtain as well as come with higher interest rates due to bruised credit/lower credit scores from foreclosure.

The IRS frequently deemed the difference between the mortgage balance and the amount realized from the short sale to be taxable as income despite the fact that the debtor never saw a dime of it. The Mortgage Forgiveness Debt Relief Act 0f 2007 that just went into effect on January 1st, 2008, essentially eliminates this problem.

Only late payments on a mortgage will show and after sale mortgage will be reported as paid or negotiated. This will lower the score as little as 50 points if all other payments are being made. A short sale's effect can be as brief as 12-18 months.

Foreclosure stays on credit history for more than 10 years.

Current and future employment may be affected as many employers now require credit checks, particularly for employees in financial or sensitive positions.