When you can no longer afford your house payments, a borrower has the option to foreclose or short-sale the home. Foreclosure is when the bank forces the sale of the property, which was used to secure the loan, so that they may recover the balance owed. Short-sale is when the borrower asks the lender to accept less than what the owner/borrower currently owes. Whether you choose to foreclose or short-sale your home, you should expect your credit score to take a hit.
Each route has its own benefits. In order to choose the best decision, it is recommended that you consider multiple factors.
ELIGIBILITY: The homeowner must prove economic or financial hardship in order to be eligible for short-sale.
PURCHASING ANOTHER HOME IMMEDIATELY: So long as you have good credit, it is recommended that you attempt to obtain a loan prior to applying for short-sale since any record of short-sale/ foreclosure may prevent a potential borrower from being qualified for a loan. After a foreclosure, the potential borrower will be unable to obtain a Fannie Mae-insured loan for up to seven years; whereas a short-sale may cause this prevention for up to two years.
LENGTH OF TIME TO MOVE AFTER A SHORT-SALE/ FORECLOSURE: A short-sale may allow you to remain in the home for two months or even longer, while the lender requests your application to short-sale. During foreclosure, the lender may require that you vacate the premise or may choose to evict you once the home is sold at auction.
If you have any questions, contact an Orange County Bankruptcy Attorney at 1st California Law today!