Deciding between a short sale and foreclosure is one of the most difficult decisions any homeowner may ever have to face. One thing that may make that decision easier is considering the deal a lender is willing to accept. If a pre-foreclosure short sale is a possibility, it is almost always an advantage for the borrower to make that sale.
The most important feedback when choosing between a short sale and foreclosure will be what the lender is offering. Specifically, a borrower needs to ask how the matter will be reported to a credit agency. If the lender is willing to list the debt as paid in full, this will not be a mark against the borrower. If, however, the lender marks the debt as settled for less than the amount owed, there will be negative consequences on the borrower's credit. Whatever the lender is planning to do, it should be put into writing before the borrower makes any decision.
These negative consequences will not be the sole determining factor in choosing between a short sale and foreclosure. Even such a designation on the credit is not as bad as a foreclosure. Thus, in most cases, a short sale will usually be a better option for those looking to protect their crediting rating as much as possible.
Another matter to consider when choosing between a short sale and foreclosure is whose terms the borrower would like to leave under. If engaging in a short sale, the lender may offer some leniency in getting moved out, giving the borrower the freedom to move out at a more convenient time. A foreclosure will give the borrower no such leniency. Once the foreclosure is processed, the borrower will have to vacate the home, usually within 30 days.
There may be some limited situations where an individual may not choose a short sale and risk the foreclosure. For example, some borrowers may feel they will be able to come up with the money, but may need every last minute to produce it. In some cases, the borrower and his or her family may simply not have anywhere else to go. Faced with homelessness, a foreclosure may seem like a better option, simply because it will put off the situation as long as possible.
Both a short sale and foreclosure have some negative consequences for the borrower. It is up to the individual to figure out which one may cause the least harm. In most cases, this will be a short sale. In the end, both decisions put the borrower in the position of losing the home.