Foreclosure is the legal option a lender considers following a delinquent mortgage with aim of selling the property and using the proceeds to cover the outstanding debt as well as the expenses incurred during the foreclosure and the sale. A short sale on the other had is an option the homeowner considers when the market value of the house is extremely less than the principal amount outstanding in the mortgage debt and he/she cannot be able to repay the debt. A short sale involves the debtor selling the home and the proceeds used to clear his or her debt obligation. The lender has to consent to it and he/she is not bound to accept the short sale.


Credit score

Foreclosure has a substantial negative impact on the debtor’s credit score whereby it can fall by 200 to 400 points. It is also reported on your credit report for 7 years and this will result in difficulties finding new lenders and even in your career because a foreclosure on your report may reduce your chances of been hired.

A short sale has a relatively lower impact on your credit score as it can only decrease it with 50 to 130 points, and the credit reports after a short sale will state that a loan was “settled,” “paid as agreed,” or “paid in less than full” with the last having the more negative impact on your credit score.


Future borrowing

After a foreclosure you can buy another house after 5 years if you can meet a number of restrictions or after 7 years with no limitations. Foreclosure is required to be included in the person’s loan applications, most lenders seeing it will automatically reject you application. Lying should not be an option because it would result to an investigation been conducted on you for mortgage fraud by the FBI.

With a short sale, you may be able to purchase a new home almost immediately. You may or may not report the short sale in your loan applications. Nonetheless getting a new lender may be tricky.


A person’s primary residence is exempt from mortgage debt relief tax on the federal level. However some states tax you if you don’t qualify for an exemption. An investors is not exempted from a mortgage debt relief tax. This is true for both the foreclosure and short sale but in foreclosure you have to be careful because lenders may send 1099 forms to you even if you are exempt.

Length of Time to Move after a Foreclosure or a short sale

In the wake of a foreclosure unless a prior understanding had been arrived at, the lender may require your immediate vacation from the house and start eviction process sooner.

If you are considering a short to counter a foreclosure, you are likely to prolong foreclosure while the bank considers your short sale, which can take 2 to 3 months, or more to be approved and its approval is a very likely phenomenon as it reduces additional fees and costs for the creditor as well as the borrower.