Opting for a short sale to avoid foreclosure can have many advantages. If you have trouble making mortgage payments, the creditor will agree to lower your loan balance when you short sale your home. You will have to sell the home for less than the outstanding balance of the loan and pay the lender the proceeds. Using short sale is generally less costly and faster than foreclosure and presents benefits to both the debtor and lender.

Short Sale

* You are in control of the sale
* You do not have to foreclose
* You can be current on your mortgage payments
* The sale will be handled like any other home sale
* If you have no late payments and the lender does not require that you pay back the loan, you are eligible to buy another home immediately
* Short Sale will not affect your credit score
* Deficiency judgments are often negotiated between the seller and the short sale bank, in some states and cases there will be no deficiency judgment
* Loan applications do not ask questions about a short sale
* A personal residence is exempt from mortgage debt relief until the end of 2012 on a federal level; beware that some states will still tax you unless you qualify for an exemption
* You do not have to move immediately since the short sale approval process can take 2-3 months

Foreclosure

* With certain restrictions you may be eligible to buy a new home, if it was a primary residence, in five years, or seven years without restrictions
* Significant drop in your credit score that stays there for ten years
* Banks are unwilling to negotiate deficiency judgments with the homeowner after a foreclosure
* Loan applications will ask about foreclosures and often will deny credit because of it
* A personal residence is exempt from mortgage debt relief until the end of 2012 on a federal level; some lenders, however, may immediately send out 1099s, even if the owner is exempt
* You will have to vacate the property immediately and the creditor can initiate eviction proceedings if you don’t