No matter from which angle you look at it – foreclosures and short sales both equate to losses. Whether one agrees to a short sale or succumbs to foreclosure – the net result is the same. The house that was the home is lost. The credit record too is badly mauled.
Recently a trend of thought is that the short sale does less damage to the credit history. In a short sale the lender agrees to the borrower selling the house at an amount that is less than the due amount.
The next question is related to counseling. Under such circumstances is it worthwhile to spend time and energy on counseling? Recently some profit hungry counselors are grabbing the attention to sell their views about pre-foreclosure steps. At this stage the borrower should literally count the pennies. The foreclosure is closing in because the borrower cannot manage commitments – does not have the money. Excellent help is available for free from many reputed non-profit groups.
The best solution is to work out a plan directly with the lender – that is if the finances have not already crossed the Rubicon and gone to a point of no return. Modification alone will allow the borrower to continue to stay on in the home. Credit too will not be harmed. But it all depends on the report the lender submits to the credit bureaus.
Foreclosures and short sales are equally harmful for credit records. Either of these will disqualify the individual from taking a loan for three years if the reo property has been under cover Federal Housing Administration’s insurance. Except under exceptional circumstances like grave illness or death of an earning member of the family this is the rule followed.
According to Ira Rheingold of National Association of Consumer Advocates “Whether you go to foreclosure or not, it does a lot of damage to your credit score.” In all future mortgage applications one will have to state that a house was lost because of failure to keep to mortgage commitments. For seven years it will restrict getting new loans. Michael Radesky of Bank of America (the bank that has recently taken over Countrywide Financial) said that at the point of evaluating a loan applicant the one with a short sale background would have a very small edge over the one who suffered foreclosure. The only clear winner in a short sale is the buyer who got the reo house at a discount!
