Foreclosure in Saginaw>Question Details

Maria, Home Buyer in Saginaw, MI

If you short sell a home what are the negatives vs a foreclosure

Asked by Maria, Saginaw, MI Mon Oct 29, 2007

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With a short sale, your credit will not be as severely impacted as with a forecosure - but do not mistaken - it will be impacted. But because the drop in your score is less with a short sale, you just may have the opportunity to repair your damaged credit more quickly and thus get back into the housing market that much more quickly.

However. Your lender has to agree to a short-sale. You may have to provide some pretty solid and compelling evidence that you are and will be unable to make payments, that your property is in need of repairs you are unable to afford, that you are impacted due to a distressed housing and/or employment market. In "short", you will need a good reason as to why the the lender should agree to your short sale.

Because a foreclosure can be an expensive legal process for lenders, they may be willing to work with you; but again, you will have to make your case.

Another issue to worry about in a short sale (and with a foreclosure, too) is the possible impact the forgiven debt can have on your income tax. Forgiven debt can be considered income and can thus create tax implications. Your lender will issue a 1099 for the forgiven portion, so it will be recorded. That would be the last thing you need when you are already in financial straits, so be sure you understand the terms of your mortgage and talk to a financial adviser before proceeding with either avenue.

Best of luck to you.
3 votes Thank Flag Link Mon Oct 29, 2007
Patti Pereyra, Real Estate Pro in Chicago, IL
If you can do a short sale - DO IT!! There are many advantages over a forclosure. Talk to an attorney. Talk to your mortgage lender.
2 votes Thank Flag Link Thu Nov 1, 2007
Maria, Patti covered it quite well. It is slightly better on your credit, but it isn't the easiest thing to do. The loss prevention departments are difficult to deal with and wind up being an unenviable job for your agent. I have a short sale currently and I would say that between my assistant and I we spend at least two hours a day on the phone attempting to contact their representative.

My client had a series of misfortunes that lead to this and I think we're doing the right thing by pursuing it.

Good luck with your situation!
Web Reference:
2 votes Thank Flag Link Mon Oct 29, 2007

I've dealt with Wachovia many many times, either the dealer tattoo'd the paper work, which I doubt ... or... as usual, the BK follows the charge-off by 6 to 15 months because the courts are backed up - the best is yet to come..l.o.l..

Hmm, interesting: "I can help you buy a home with no money down and no new bank financing completely legal and safe" --- Member since 01/29/08
1 vote Thank Flag Link Wed Jan 30, 2008
Maria, This is actually what you want to do if you are in a situation where your are behind on payments and the bank is threatening to foreclose. A short sale will save your credit and you can buy another house right away. If it forecloses it will go on your credit and you will very unliquely be able to get any loans anywhere for a very long time. You mortgage company has to approve any short sale too. Let me know if you are in such a situation and as a Loss Mitigation Consultant I can help you with that too. Call me at 214-289-8555
1 vote Thank Flag Link Tue Nov 13, 2007
Good news people! As follows:

"Realtors(R) Applaud House Passage of Mortgage Cancellation Tax Relief

The National Association of Realtors(R) praised the U.S. House of Representatives for today's passage of the Mortgage Cancellation Tax Relief Act, H.R. 3648, by a vote of 386 to 27. Since the early 1990s, NAR has advocated for repeal of the current law, which forces individuals to pay an income tax when they have had a loan forgiven or have had to foreclose because of their inability to pay their mortgage.

"Congress made a good decision today that will affect many Americans who find themselves in a truly bad situation," said NAR President Pat V. Combs

"Realtors(R) are about building communities, not just selling homes. We must work together to prevent the dream of homeownership from becoming a nightmare," said Combs. "This is just one step that will help families get on with their lives and begin rebuilding their economic security."

So it appears a loan forgiveness from a short sale isn't taxab;e income and might actually be a write off. Talk to your CPA today!
1 vote Thank Flag Link Thu Nov 1, 2007
A Foreclosure will do a lot more damage to your Credit than a Short Sell.
1 vote Thank Flag Link Tue Oct 30, 2007
The biggest negative of a short sale over a foreclosure if the tax consequences you face since the lender can issue you a 1099 on the 'savings.'

The biggest negative of a foreclosure is the deeper damage and longer period of time the damage stays on your credit record.
1 vote Thank Flag Link Tue Oct 30, 2007
Deborah Madey, Real Estate Pro in Red Bank, NJ
It's tough to tell going forward as the lending market has changed dramatically over the past few weeks. If you think like a lender who would you like to do business with in the future? If you do a short sale at least it looks like you put some effort into the process. You may get more money for the house as well. You have some control over the process and perhaps what the home sells for. You may be able to get within 5% of what you owe. However if you let it go to foreclosure you will have absolutely no control over the sales price. What if it gets vandalized after you move out and they get even less for the home. What if they send it to auction and the bank gets 20% less than you owe. Either way they will likely still pursue you for the difference. In a short sell situation at least you will get to pick the realtor, keep the house looking good, keep it furnished etc and perhaps help your realtor in the negotiations. You can also help with marketing. Once you turn it over to the bank you won't have control of any of these things.
Web Reference:
1 vote Thank Flag Link Tue Oct 30, 2007
Bruce Lynn, Real Estate Pro in Coppell, TX
I read a great article today about this exact question. Please see below:

Which is worse: foreclosure or bankruptcy?
Based on our mail, the financial squeeze that's left millions of Americans falling behind on their mortgage payments doesn't seem to be letting up. For some, that presents a stark choice: is it better to lose your house to foreclosure or file for bankruptcy protection?. The Answer Desk, by's John W. Schoen
1 vote Thank Flag Link Mon Oct 29, 2007
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0 votes Thank Flag Link Tue May 15, 2012
Please go to my website for FREE information.

Sara Mehrpouyan CDPE
Rodeo Realty
Direct Phone: 818-903-2040
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0 votes Thank Flag Link Wed Apr 20, 2011
A short sale beats a forclosure any time of day. It is a win win situation for all concerened; Lender, borrower, the buyer and the community as a whole. The lender almost always nets more money, the buyer ends up with a home that is in most cases in much better condition than a forecloure and the borrower takes a less severe hit on their credit. There is a little work involved in the process but lenders have finally realized the benefits of short sales to their bottom line and are eager to work with borrowers who are responsible and willing to make an effort. It boggles my mind when I see home owners simply walking away without even trying. The notion that agents spend two hours a day on the phone talking to banks is simply not true. Some short sales may take a little longer depending on the lender; the process is a little more involved than a typical deal for a variety of reasons such as second liens etc...My advice for you is to find a knowledgable agent who is persistent and knows what they're doing.
0 votes Thank Flag Link Sun Nov 21, 2010
There is a nice table here that shows some of the differences.
0 votes Thank Flag Link Fri Oct 10, 2008
A short sale is ALWAYS better than a foreclosure, always. A foreclosure is devastating to your credit and the lender has every right to come after you for a deficiency balance (whatever owed that was not payed back after the auction). A short sale satisfies the actual sale of the property and deficiencies are negotiated before the sale with the lender, plus there is no foreclosure on your record. It a win-win-win situation instead of a straight loss-loss. You can list your property with a realtor and hope that it sells within the time necessary or if you would like, you may contact me and I will negotiate the short sale with your lender AND BUY THE PROPERTY. I buy houses like this all the time and you don't have to pay any commissions or fees neither! Contact me if you would like to know more.

Best Wishes,
Will Robles
0 votes Thank Flag Link Sun Aug 3, 2008
as you can see the same company through another source "Wachovia" refi'd after 2 mo's payments. Botom line its not the end... Its a new beginning...
0 votes Thank Flag Link Wed Jan 30, 2008
You are going to take a hit to the credit profile on both, but the foreclosure will be viewed as more derogatory.

Still, it does not mean that all future oppty is lost. You will need to rebuild your credit by showing on time payments. You might need to meet more stringent guidelines to buy another property, but that prospect is not vanished.......not at all. You might pay a higher rate, and as result have reduced purchasing power. After a year of on time payments, you can refi if that is to your advantage.
0 votes Thank Flag Link Wed Jan 30, 2008
Deborah Madey, Real Estate Pro in Red Bank, NJ
A short sale will or may cause a 1099 misc income from the lender debt forgiveness which taxes may have to be paid on. New legislation may dismiss this issue. In regard to your credit your going to get dinged hard period. Whether a forclosure or short sale pretty much the same and looked at the same. Dont worry about it though. I had a foreclosure 1 year ago on 665k in SD CAL. and file BK7 in feb07 closed it may07 and in sept bought 100% financing a 2006 toyota tacoma with 20k miles through a dealer with Wachovia Dealer finances at 18% for 72 mo then two months later in dec07 refi'd again with same lender at 9.27 for 60mo. It regards to home ownership I can help you buy a home with no money down and no new bank financing completely legal and safe from creditor issues and private. This is the truth and own true story. email me if you want to here more of it at
0 votes Thank Flag Link Tue Jan 29, 2008
If you are facing foreclosure, it is in your best interests to get in touch with a local Realtor that knows how to do a short sale immediately to find out if you qualify. I live and work in the Fort Worth market, I am a Realtor, I have faced foreclosure, I know how to do a short sale and I am on stand by.
0 votes Thank Flag Link Thu Nov 1, 2007
Selling short may not be possible when you have lots of assets. They don't like taking discounts when the owner has lots of equity in another property, etc...
0 votes Thank Flag Link Mon Oct 29, 2007
You may have to bring some cash to the table especially if there is a large 2nd. I think you might also need to pay off any leins on the property or negotiate with them to get them forgiven too.

I am thinking about buying a short sale off a friend of mine who is in trouble. I'm worried about over paying, work that needs doing on the house that has been empty and neglected, and paying any unknown to me creditors later or at settlement.
0 votes Thank Flag Link Mon Oct 29, 2007
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