A homebuyer who has borrowed money from a lender to do so has also agreed that in the event he/she does not make the agreed uon payments, the lender may keep or foreclose on the propert. A short sale is when the lender agrees to accept a mortgage payoff that doesn't cover the outstanding loan. Lenders almost always lose money when they foreclose on property. In many cases, they will lose less money through a short sale than they would by foreclosing on the home and selling it as a bank-owned property.
Now that we have explained why it may be in the bank's best interest to accept a short sale instead of engaging in foreclosure proceedings, let us tell you why, althogh it is more complicated and time consuming, it is also in your best interest to attempt to settle with your lender through a short sale rather than allowing a foreclosure take place.
If a foreclsoure is complted by the lender, the homeowner could incur more significant, long standing damages than if the debt is settled thrugh a sort sale. A homeowner who goes through a foreclosure typycally sees their credit score plunge about 200 to 300 points, whereas in a short sale, their credit score may drop 80 to 100 points. It can take from 3 to 5 years or more after a foreclosure before a mortgage lender will offer the homeowner an affordable interest rate, whereas in the event of a short sale, a homeowner can typically qualify for a new mortgage and buy a home in as little as 18 months with the establishment of new credit, and the interest rate and loan to value ratio will be much more favorable.
