Are there any advantages to letting my home go to foreclosure vs. doing a short sale?
I have yet to hear a coherent argument for letting your home go to foreclosure vs. doing a successful short sale. Depending on whether you have a recourse or non-recourse loan, when you let your home go to foreclosure you either run the risk of being liable for the deficiency amount or liable for the income taxes on that loss. Secondly, your credit will drop up to 400 points and you will not be able to buy a home or get any decent credit for up to 7 years. Compare this with a short sale, in which the lender agrees to SETTLE the debt for less than the amount owed. If you have recourse loan, you may be liable for income taxes on the lender’s loss (just as in a foreclosure) but you will not be liable for the deficiency (and if you qualify for the “Insolvency” exclusion, you will avoid the income taxes as well). Further, the loss that the lender takes in a short sale will be MUCH LESS than the loss the lender takes at the end of the foreclosure process. The foreclosure process takes months
