If you are behind on your mortgage and facing potential foreclosure proceedings, is it better to dispose of your property through a short sale (where you sell your home for the market value, even though it’s less than the amount remaining on the mortgage) or to go through the foreclosure process? Is there any advantage to using a short sale to address your financial challenges?
Short Sale vs. Foreclosure—Any Benefit?
According to most industry experts, the impact of a short sale on your credit will be almost identical to that of a foreclosure, assuming that you have chosen to short sell your home because you are behind on your mortgage. Most credit reporting agencies reduce your score by a specific number of points for certain events, including:
- A payment more than 30 days late
- A payment more than 90 days late
- A foreclosure, short sale or deed-in-lieu of foreclosure
- A bankruptcy filing
Industry representatives also say that it takes about the same amount of time—around 7 years—for a person to restore his or her credit rating after a foreclosure or short sale. Ironically, the higher your credit score before the short sale or foreclosure, the longer it will typically take to reestablish that high credit rating.
According to a study by the Fair Isaac Corporation (FICO), the industry leader in software to calculate credit scores, people who short sell a home have a higher tendency to default on other credit obligations. One report showed that approximately half of all people who sell short default on another obligation within two years. Because of this data, credit reporting agencies tend to treat short sales like foreclosures.
Contact John Hargrave and Associates
We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.