Short Sale VS. Foreclosure - Which Is Worse?

Hi Kevin,

It depends.  The Foreclosure is almost always picked up by the three credit reporting bureaus and it usually stays on the consumers credit report for 7 to 10 years.  Short sales are not always reported to the credit reporting bureau.  Those that I have seen seem to stay on the consumer's credit report for about 3 years instead of the 7 to 10 years.  In addition, the number of points that get deducted from your credit score seem to be less with a Short Sale.  Hope this helps.

From my experience, it's not just the late pays, but the fact that the bureaus reflect the loan was satisfied at less than the payoff amount. 

Kevin, I think each situation is unique....but as I understand it Bill has represented what we know about it. Elizabeth Weintraub in talking with Viteck wrote in a post that the foreclosure recovery can be a 4/5 year cycle with the homeowner being able to purchase again at that time. That was news to me. For a short sale, the client can recover and purchase in a 2/3 year period also provided by Elizabeth in her interview with a Vitek employee. You could look up her post. Hope this helps!

Kevin--I am doing quite a few short sales and getting them to closing (not without a lot of headache).  I have been told that there is legislation being presented that will keep the short sale from damaging the credit scores.  Obviously, it hasn't been passed yet but this could help a lot of folks in this situation.

They are identical, Kevin. If anybody tells you anything different, they are wrong. Short sale or foreclosure, you'll still be leaving the lender with the short end of the stick, so to speak, and your credit report suffers the same. It used to be different, but it's not so anymore.

You can go to my site on About.com where I discuss short sales and foreclosures until the cows come home. But I also interviewed a dozen experts. Everybody said the same thing. Not only that, but short sales aren't even profitable for buyers, but that's a whole 'nother blog I will post here some day.

Obviously the short sale would look a whole lot better than the foreclosure!

I received information from my credit repair contact.  I think that we have all been waiting on a report to see how these are actually affecting the credit scores. The email indicated he has just completed 3 transactions that involved individuals that had sold short within the previous 12 months.  My contact stated that he and the clients were pleasantly surprised that there was no negative reporting.  His observation was that the bank reported the loan as an "01", instead of an "09".  Of course 3 is nothing to base, or use as an actual standard, but it is good news that depending on the lender, there may not be any negative reporting. Time will tell, there are alot more short sales to come.

Toni

Thought provoking post. I would not advice customers on this topic. They can talk to an attorney.

Its my opinion, that this has become the norm, and unless a seller is willing to let the bank make the decision for them, than sales do not happen.  It amazes me indeed.  I can't help but feel, like there is something wrong with either option.  May God help me to know the wisdom between the good and the bad.  I look forward to more blogs from you.  Lu

Kevin

Great piece.   I really appreciate you bringing this issue to light.  The bottom line is that in either scenario the homewner is in diffficiency as far as the lender is concerned. Both can be equally damaging as far as the credit is concerned.

by the way, Do you have an outside blog that I can add to my Blogroll ?

Thanks and look forward to reading your thoughts on the world of real estate.

There's no credit presevervation advantage to short sale over foreclosure. Both are going to ding your FICO score for 10 years.