Short Sale Vs a Foreclosure

The decision to do a short sale or walk away is not any easy one!

I urge you to first look into all your possibilities before you make your decision.

First, let me start out by saying that you will not be liable for any income taxes since the passage of the 2007 Mortgage Relief Tax law, but this law will expire in 2012. So any short sales or foreclosures after 2012, you might end up owing taxes on the debt forgiven. Even if this law didn't exist, if you do a short sale over a foreclosure--you still end up winning because your tax liability will be less on a short sale than on a foreclosure (for transactions closing after 2012).

A foreclosure is something you DO NOT want on your credit. It will stay on your record for 10 years vs. a short sale will stay on 5-7 years. With a short sale, you can buy a home after 2 years. With a foreclosure, you might have to wait five to seven years to buy again. By then, mortgage interest rates and home prices might increase to a point where you might be priced out of the market.

Foreclosure has a bigger stigma than a short sale. A foreclosure shows that you don't care about the lender's position and a short sale shows that you are an responsible person and care about mitigating the lender's position. Why should this matter to you? Why should you care about lessening the losses of your the lender? Are you thinking: they didn't care about you when they gave you a loan that obviously was toxic? Unfortunately, it will matter to anyone who wants to do business with you or even to any future employers. Someone reviewing your credit report could base their a decision to do business with you or even to give you a job on what they see on your report. I think that sucks! But, I didn't write the rules, I'm just informing you.

Aside from a foreclosure staying on your credit record longer than a short sale, employers look at your credit report as well. They want to see how responsible you are and could base their decision not to hire you on what the see on your credit report. As if getting rejected from a job isn't enough, did I mention that you will get higher interested rates on every thing you apply for and even could damage your standing with Insurance companies causing them to increase your insurance premiums. Don't know why that is but it just is. I don't like it as much as the next person but it is what it is and I didn't write the rules, I'm just informing you of them so that you can make a better decision as to do a short sale or just walk away.

Of course, every loan is different and you may not have the option to do a short sale but most lenders are more open now than they were just a year ago. Please note that California real estate laws are different than other states and any questions answered by Realtors and agents out side of California may not be right or factual. Please call your local Realtor who specializes in short sales and distressed properties in your area.

This is not tax or legal advise and this is solely for informational purposes, please consult with an attorney for legal matters but if you have already decided to do a short sale, I would be more than happy to assist you with that. I am California Real Estate Broker for over 20 years and specialize in Short Sales and distressed properties. Please feel free to call me at 562-916-3237 should you have any further questions.