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Short Sale vs. Foreclosure

What are the benefits of a short sale vs. Foreclosure?

With regards to credit scores there is just no simple answer and don't let people tell you otherwise.  Both a Short Sale and Foreclosure will negatively affect your credit.  With that said, if you are proactive with your short sale, you may be able to successfully close your sale with fewer 30/60/90 day late penalties, thus lessening the impact on your credit and recovery time.

Recovery Time

Perhaps a more important factor is how soon you can buy another home after a short sale.  If you can complete a short sale with no 30/60/90 day late payments (very rare), you may be able to get a FHA loan in a very short period of time.  However, in the typical short sale that has delinquencies, we are hearing about a 2-year average recovery time to purchase again.  This may be far better than in a foreclosure situation which could take 5-7 years to recover.   The banks should react more favorable to short sales rather than foreclosures when it comes time for you to get another home loan.

Stress Levels

Foreclosures can be Intense, Stressful and Intimidating.  In a short sale, a lot of stress is taken on by us as we negotiate with the banks for you on your behalf.

Security Clearance

Government employees or contractors may lose their security clearance with a Foreclosure.  If you have government security clearance, this may be a big issue that needs to be addressed.

More Time

In a short sale, you may be able to get your foreclosure postponed for several months.  This may buy you several precious months to investigate your options and plan for your relocation.

Senate Bill 931

SB 931 now helps many short sellers with potential large deficiencies from banks.  This basically nullifies California's recourse loan statutes on first trust deed short sales.  Even though this bill does not address second mortgage loans or  tax consequences, it can be a huge advantage for 2011 Short Sellers with a large "first" mortgage that can potentially save hundreds of thousands of dollars!

Get Legal and Tax Advice

As Realtors, we cannot give legal or tax advice.  The above opinions and statements are general rules of thumb and are subject to change.  We, here at Merrill & Associates Real Estate, try and educate you with all the facts available and keep you informed to the best of our ability.  Foreclosures and Short Sales can be very complicated.  We ALWAYS recommend consulting an Attorney and Accountant to get  legal and tax advice for your specific situation.  We would be happy to recommend a local Attorney and CPA for you to speak to.