I have stated on this blog that I usually do not recommend that upside down homeowners invest time or effort in short selling their real estate. I do not think that short sales provide a significant advantages to the homeowner.
Many real estate sales agents actively promote short sales instead of letting a property be foreclosed. Why? Because, they argue, that a short sale will have a reduced impact upon the homeowner’s credit score.
I found this article about how FICO treats short sales and foreclosures. The article reports that, “But Fico didn’t feel the difference …was material enough to merit a “more positive treatment” for short sales.” There is not a significant credit difference if you short sale your home rather than let it go through foreclosure. The foreclosure alternative, however, usually permits you to remain in your home, mortgage and rent free, for a much longer time especially if you defend the foreclosure in state court.
Your real estate agents make no commissions from a foreclosure. No wonder why your real estate agent wants you to sell your home rather than permit foreclosure.
On the same topic, there was a blog post on the Bankruptcy Law Network criticizing short sales and suggesting bankruptcy as an alternative. The article suggests that bankruptcy’s credit impact will be no worse than that of a short sale. Chapter 13 bankruptcy may help people save their home; Chapter 7 or Chapter 13 bankruptcy may strip a second mortgage. However, don’t file bankruptcy to escape a deficiency liability that the bank may never pursue.