When faced with the difficult decision of letting your home go into foreclosure or to sell it as a short sale, short sale always wins.
The main reason for this is how it affects your financial recovery after the home is either sold as a short sale, or sold as a foreclosure directly by the bank. A foreclosure on your record is a much bigger hit than a short sale. 30 Days after a short sale is recorded and shows up on your record it will read something like this on the mortgage line: "Mortgage was settled for less than full" and the amount owed will read "0". So there is note of it and it will effect your score, however much less than a foreclosure.
However in a foreclosure situation the mortgage line will read "foreclosure" and often times will state the amount of the deficiency which is almost always more than what the bank losses on a short sale. In many cases the amount of the deficiency the bank will state as "amount owed."
It's in the banks best interest to pursue a short sale with you. On average a short sale will sell for 15-20% below market value. A foreclosure will sell for 35-40% below market value. Which one do you think the bank would prefer?
Another point to look as the affect each process has on the family. A short sale allows the seller to have more control over the situation. It can allow them to preserve their social dignity and give them a peace of mind they wouldn't get from the foreclosure process. The closer you get to your home being foreclosed on the more free the bank is going to be stop in unannounced and force the family into a pressure situation to need to leave the property due to legal action.
The quicker the seller acts if they get behind in their payments the more flexibility they'll have and the quicker they'll be able to get back on their feet financially when it's all said and done.
In a place where a home owner is forced to decided which road to hoe, the short sale wins every time!
Thanks for your time!
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