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Foreclosure versus short sales: Benefits and drawbacks

There are benefits and drawbacks to both short sales and foreclosures for sellers. When trying to decide which one is right for you, your attorney can help you work out the legal implications, but these benefits and drawbacks may be helpful.

Foreclosures can be beneficial because they lead to your debt being written off; you no longer have a mortgage to pay. You won't have to worry about selling your home yourself, so you won't have the added stress of a sale on top of your concerns about debts. Foreclosures do have downsides, though, like losing your home and suffering damage to your credit report.

Short sales have some benefits including the fact that your home will sell. If it happens to sell for more than you expect, you may still end up making a profit. If not, your debt can still be written off. You'll also be eligible to buy a new home in as little as two years.

The downside of a short sale is that you need to wait for the bank to respond to an offer, and the offer could be refused. You'll need to produce a hardship letter, bank account information and other documents for the bank to prove a short sale is necessary. You may also see a dip in your credit rating, although it won't be as severe as it would be with a foreclosure.

With either of these processes, the time it takes to complete a sale or foreclosure can be extended. If you want to consider other options, speak with your attorney before you choose what you want to do.

Source: Realty Consultant, "Benefits and Drawbacks of Foreclosure vs. Short Sale," accessed Nov. 19, 2015

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