Thread: Short sale VS foreclosure

Worse For What?

Worse for whom, worse to work with, worse, worse worse...

Let us know what you are really asking, and I am sure that you will be buried with opinions and experiences.

I have done both SS and REO (bank owned) as well as helped homeowners out of FC through forbreance agreements and reinstatements. Loan mods, negotiations, etc.

If you are asking about which is worse for the homeowner's credit, well a full blown FC is the worst, BKs are better than FCs! A SS is not bad, as it appears that the lender settled for less than what was owed, and of course a reinstatement is good, as it looks like the homeower has stumbled, but now is following the terms of the promise to pay (note.)

So let us know where you are heading.

Thanks!

Michael Suess
The REI Training Warehouse, LLC

Please tell us more about what is going on and we will try to help. If you are strictly talking about the credit than yes a foreclosure is worse. Or are you referring to worse in terms of buying real estate again?

yes, fore closure is worse in my experience

Foreclosure is worse if you plan on using your credit afterwards.

I have been told that FC is the "mortal sin" whereas BK is not as bad. Now you are comparing FC to SS... Well, umm, exactly what are you asking?

To get a SS, the homeowner needs to be in default, in otherwords, the lender is seeking FC (or just about to.) So, are you asking if a fully completed FC (selling at sheriff's auction/trustee sale) is better or worse than having a SS negotiated on the property, and the lender accepting less than what is owed?

If so, then SS is better, as it will appear on the homeowner's credit report as the lender accepting less than what was owed, but it still is a bad mark. I suppose lenders think that at least the homeowner didn't just say "tough, and try to collect" but made an effort to try to minimize the lenders losses, by finding a buyer to at least cash most of the debt off.

My observations.

Michael.

The rules of lending are changing as we speak. While a short sale is not as bad to your credit as a foreclosure is currently, there is no way to know what the consequences of a short sale will be a couple of years from now.

Ultimately, from a broad view..

Working a deal with the bank and giving them some of their money is definitely better than letting it foreclose.

But again, that depends on the circumstances. If the property is overvalued and the numbers can validate that, then go for the short sale.

But if there is equity in the house, and the chances of doing the short sale are slim, and the property is not selling for other reasons...then a foreclosure might not be "best" but may be the only option.

Short and skinny: owing the whole amount is usually worse than paying them a "short" amount.

From the homeowners credit perspective, when a short sale is done, it shows on the credit report that the loan had been paid off, but in short. When a property forecloses, the credit shows that that homeowner technically still owes the balance.

More points are taken away for foreclosures than for short sales.

From the banks perspective, it's all about the dollars and cents. If they run their formula that tells them that they can recover more money now than if they waited till after the foreclosure process, a short sale is better.

If their numbers result comes back and says that the short sale offers are too low and that they would stand a greater gain owning the property and looking for a market price, then the foreclosure will be better.

As you can see, better or worse depends on whose eyes you are looking through!

Tracey

I guess the original question was not clarified. Most of the responses here seem to be related to an owner facing either short sale or foreclosure, and I agree with most of the responses.

On the flip side, as a buyer I believe foreclosures are a lot easier to deal with. While an offer on a short sale can take months to receive an answer on, foreclosures usually respond within a few days. Once the bank is in possession, they want nothing less than to unload the property ASAP.