If you are one of the hundreds of thousands of homeowners that are trying to decide whether it’s better to do a short sale on your property versus throwing in the towel and letting the bank foreclose on you, I hope you make the decision to at least pursue a short sale before you let the bank do the dirty deed of foreclosure.

From a credit standpoint, a foreclosure will ding your credit somewhere between 150 and 300 points. The foreclosure will stay on your credit history for 5-7 years. Whereas a short sale will affect your credit based on the number of months you are behind. The typical reporting to the credit bureaus is to the effect that your ‘debt was settled for less than the amount that was owed’. I work with the best credit repair folks in the business who can get this removed from your report. Really!

Whether you short sale or foreclose, the bank will issue a 1099 for the deficient amount (the difference between what was owed and what the bank nets from the sale). This is where solid tax advice comes in to play. Tax laws have been created to protect homeowners, and it’s critical that you understand if you qualify under any of them.

Many homeowners I consult with believe that since California is a non-recourse state, that it’s better to foreclose. This is simply not true. It depends on the type of loan. If you hold an original purchase money loan on a primary residence, a short sale is your answer. If you have a home equity line or a refinanced loan, you will need to make sure the short sale is negotiated correctly and your lender is willing to provide ‘release of liability’ language in their short sale approval letter.

This is where the skill and expertise of an experienced short sale real estate agent and short sale negotiator come in to play. Please! Don’t put your short sale in the hands of just any agent. Make sure your agent has the ability to negotiate and fight hard for you.

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