Is A Short Sale Better Than Foreclosure For Credit?

A lot of people are wondering, “Is it better to go through a short sale process and sell the property yourself or is it better to just take as much time as you can and let the bank foreclose and do sort of a hands off approach to the property going to foreclosure?” My personal opinion is that it’s much better to do a short sale and I’ll tell you why. In a short sale, you as the borrower, you stay in control of the situation the entire way through. You set the price, you control when you sell it, how much you sell it for, who you sell it to and what the timing is. In a foreclosure the bank dictates all those things. They tell you when this house is going to be sold and that’s it. They sell it and you have to move.

You don’t get a chance to maybe negotiate for a little extra time or take another month or whatever the scenario is or even control who the property is sold to such as an investor you like or someone in the community you want to sell the property to, the bank is just going to sell it when they decide to do so and then you are out. With the short sale, you control the process, it’s much more flexible for you, it’s much more user friendly for the homeowner and the family that’s living in the property rather than the bank coming up one day and saying, “Okay. In 3 weeks we are selling your property and you are out.” The other aspect to consider, in my personal opinion is that a short sale is much better for your credit report in the future than a foreclosure sale is.

The reason I say that is because a short sale reflects that you did something proactively to settle the account, to make it work for the lender and the trade line will show as settled instead of foreclosed. There still may be some reference to foreclosure on your credit report that you were in foreclosure for a period of time but in my opinion it reflects better on the credit report in the future that it was a short sale and it was settled rather than just foreclosed on and involuntarily repossessed. I think it’s easier to rebuild credit after a short sale, it’s much easier than rebuilding credit after a foreclosure. Also if you are thinking about your future self, potentially getting another home loan down the road, oftentimes lenders have a certain waiting period before you can qualify for another loan for a short sale.

It’s a different waiting period before you qualify for another loan after a foreclosure. As you might guess, the short sale waiting period is usually quite a bit shorter than the foreclosure waiting period. Those are some things to consider if you are going through the process of losing your home whether it’s to a foreclosure or to a short sale, I think it’s much better to do a short sale. Frankly, short sales are more complicated. There are a lot of great foreclosure attorneys and real estate attorneys that handle short sales. My office does. So the trick is to actually get it done. A lot of people work on short sales but in the end they can’t close because there are too many moving parts, it’s too much of a legal matter for a lot of real estate agents to deal with even though they’ll tell you that they deal with short sales. There really is a lot of nuance to it and there is a lot of contract negotiation.

Definitely consider hiring an attorney to do your short sale for you. It can turn out a lot better that way and I think you have a much better shot at actually getting the deal done because so much of it is actually negotiating with the lender and not just about selling a property to whoever, whichever buyer comes along.

For more information on Short Sales Vs. Foreclosures, a free initial consultation is your next best step.