Foreclose or Short-Sale

This call comes in more often than I like.  Person calls me to ask should I short-sale or should I foreclose on my property.  Well, we have to take a couple of minutes to get some background on the situation.  What brought them to make this decision.  Usually I’m looking for some sort of hardship (job loss, illness, increasing ARM above increase in income).  Then I start looking for solutions to their current needs, loan modification, borrowing money, second jobs, etc.

Sometimes we get back to the original question, should I short sale or just walk away.  Putting this question in a vacuum, with no other options possible.  The answer is to short sale.

Warning: Typically less than 10% of short sale listing actually close.  Short sales are rather difficult to close on, the banks are slow to respond to offers, buyers don’t want to wait, etc.

So why do a short sale then?  Because when all things considered in your financial history when you go to apply for a job, buy something on credit (car, house, anything), they will see you did a short sale which is looked upon better than a foreclosure.  It will show them that when you were down you still did as much as you could when others give up.

Short sales will impact your FICO score for a shorter period than a Foreclosure will.  But that is only part of the impact.  When someone pulls your credit report, they are not only getting your FICO score, which is really just a calculation, they are also getting your history.  Based on that history they can come up with their own score, which is what they will do, they use the FICO as a quick gauge, but for the final decision, they are looking at a whole heck of a lot more (tax returns, pay stubs, credit history, savings, etc). 

So, when faced with having to pick short sale or foreclosure as your only two options, it is better to try to do a short sale, this will be the shortest path to financial recovery than a foreclosure.

Another way to think of it is who would you rather work with, a doctor that wants to find a cure or a doctor that doesn’t believe there is a cure?

Related posts:

1. Short Sale Myths
2. Update on Foreclosure or Short-Sale
3. When it’s Time to make the Short Sale Decision
4. How long does a short sale take?
5. The real cost of a short sale