The recent recession or financial downturn of the global economy has affected everyone. As a result, in the last few years, there has been a tremendous increase in the number of homeowners who have received default notices for not paying their mortgage loan installments regularly. The result has often been foreclosure or a short sale of the property.
Many homeowners don’t understand the difference and therefore don’t know if they should let the foreclosure happen or if a short sale is better. This ultimately leaves the lender with all the leverage and puts the homeowner’s fate in someone else’s hands.
It’s important to know all the consequences of both options in order to make an informed decision about whether or not to go with a short sale or foreclosure. Of course, we could simply say to always pursue anything that avoids foreclosure as that is often the worst result, but that’s too easy. Let’s look a little deeper.
Advantages of Letting the Bank Foreclose
- You don’t have to do anything. This method does not require you to take any action. Some people actually prefer to walk away which brings us to…
- …Cash For Keys. Because of the hard feelings created by a foreclosure, some people choose to trash the home on their way out. Lenders often offer a cash for keys program that pays the leaving homeowner for keeping the home intact. If you’re going to foreclose, you might as well check into whether or not the lender will pay you cash.
Advantages of Short Sale
- Results in less damage to your credit both short term and long term
- Reduces the chances your lender will pursue you for a deficiency judgment
- Allows you to purchase another property sooner (after 2 years)
Make no mistake, the short sale is a better option and we could probably list more reasons to support that statement.
In addition to the positive aspects of a short sale, the list of disadvantages on a foreclosure is quite long. It remains as public record for the next 7 to 10 years, it affects the credit report, any future purchase, your ability to get other loans, current or future employment and more.
Short sale or foreclosure? The answer is pretty simple. Walking away should only be a last resort.
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