Benefits of a Short Sale:
1. A short sale often allows the seller to walk away owing nothing. You are often able to negotiate away all the debt. Banks know they will net more money with a short sale versus foreclosure. In fact, a recent study showed banks would net 20 percent more money with a short sale versus foreclosure. Because of this, most short sale banks completely forgive the debt. Yes, they might be losing $100,000 or more. However, they would rather cut their losses and let you go free.
2. Short Sale Sellers are eligible to buy another home much faster. For example, Fannie Mae recently released a guideline for sellers who short sale. If you short sale, then you are eligible to buyer another home two years after the short sale.
3. A Short Sale preserves your dignity. You won't have a "Notice of Foreclosure Sale" posted on your door while you still live in the neighborhood.
4. A Short Sale does less damage to your credit. Your credit score typically drops by 250 to 300 points on a foreclosure. With a short sale, your credit may only drop by 50 points, provided you are current on all your obligations.
Cons of a Short Sale:
1. There is no guarantee your bank will accept the short sale offer. However, banks are working very hard to improve their processes. They want the short sale process to become easier.
2. The bank will want to see all documentation on your income and assets.
3. Short Sales do not always go fast. They can drag on for three to six months. However, you can still live in the home for free during that time.
A short sale is a good option for most homeowners. It allows you to get rid of the debt and move on with your life. Many people rent another home for less than their mortgage payment. In one example, a homeowner in foreclosure found a larger home with a garage. It even had a fenced backyard for their kid. Their mortgage payment was around $1,500. They rented the nicer, bigger house for $850 a month and saved $650 a month.