Strategic default is a tempting option for distressed homeowners. But it has downsides that many don’t consider.
Remember these points if you’re a real estate agent trying to guide a homeowner to the right choice. And if you’re that homeowner, read and consider:
- You can leave on your own terms. Being evicted is no fun. That’s what can eventually happen if you’re foreclosed on. In any case, the timing of your departure will be out of your hands. By entering a short sale, you can plan the time frame and conditions of your exit—and maintain your dignity.
- You can negotiate your debts. If your first mortgage is a recourse loan, the lender can pursue your for the deficiency after a foreclosure. And other lienholders may do the same thing. A short sale provides a fleeting opportunity to negotiate the terms of settlement for all these debts, as all the parties work toward a common solution—a successful sale.
- You can save your credit. Yes, a short sale will ding your credit, but usually much less severely than a foreclosure.
- You can buy again sooner. That foreclosure on your credit report can keep you out of the market for seven years. By contrast, you may be able repurchase within two years after a short sale.
- You’ll have resolution and a fresh start. Spending months wondering when the foreclosure hammer will fall takes an emotional toll. If you know an exit is inevitable, it may be worthwhile to get it over with and begin rebuilding now.