SHORT SALE vs. FORECLOSURE

Some would ask why not just allow the foreclosure to proceed and let the home sell at auction.  Some have even stated that the impact that a short sale has on your credit report is as sever as a foreclosure.  This is a matter of interpretation and circumstances.  A foreclosure will stay on your credit report for Seven years.  By law, a home foreclosure can stay on your credit report for a period of up to what ever your state laws dictate for accounts that were charged off or never paid.  In states like New York the period would be Seven years.

The credit blemish will show up under the "Public Information" section of your report, which lists any all legal judgments that have been made against you including court-approved foreclosures. 

One must keep in mind that the normal judgement will usually stay on your credit report for 10 years.

A short sale will also have an effect on your credit report depending on how the lending institution reports the settlement to the major credit bureaus. 

In some cases it has been negotiated that the lender report the account as settled in full having little if no impact on your credit, making the short sale a far superior decision. 

This I state with one caveat, for the lender to report this favorable option, it must be negotiated in the Short Sale settlement.  If it is not clearly negotiated the lender may report the account adversely which will have a negative effect on your credit report and have credit consequences.