Is it better to accept a short sale or let a house go into foreclosure? 9 Answers as of February 10, 2011

I bought a house in 2004. I filed chapter 7 bankruptcy in 2005. I stayed in house until 2010. I am now renting another house. I have tried short sale. The offer is $100 thousand less than paid for house. Is it better to accept short sale or let the house go into foreclosure? What can be the ramifications of each?

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William C. Gosnell, Attorney at Law
William C. Gosnell, Attorney at Law | William C. Gosnell
A short sale can be negotiated with the mortgage company. Its much better than foreclosure.
Answer Applies to: Tennessee
Replied: 2/10/2011
Janet A. Lawson Bankruptcy Attorney
Janet A. Lawson Bankruptcy Attorney | Janet Lawson
It does not matter, both are a hit on your credit.
Answer Applies to: California
Replied: 2/9/2011
DiManna Law Office, LLC.
DiManna Law Office, LLC. | Dawn DiManna
That depends on whether you reaffirmed the debt as part of your earlier bankruptcy or not and your state law.
Answer Applies to: New Hampshire
Replied: 2/9/2011
The Law Office of Mark J. Markus
The Law Office of Mark J. Markus | Mark Markus
This is more of a real estate law question than bankruptcy, but the only difference between short sale and foreclosure in your situation should be the effect on your creditshort sale being the slightly less damaging. Since you already have a bankruptcy on your record, it's difficult to say how much worse, if at all, either option would be. You should also consult with a CPA about any tax ramifications of either option.
Answer Applies to: California
Replied: 2/9/2011
Carballo Law Offices
Carballo Law Offices | Tony E. Carballo
That depends on your situation but at this point maybe it really doesn't matter much. You are going to get nothing either way and you have no liability to the bank related to the foreclosure or short sale. If the short sale is pending and has been approved by the lender then you might as well go through it. It might be too late to back out. The problem might be that the buyer might sue you for breach of contract if you refuse to go through the short sale. Also, after the short sale the buyer may find something wrong with the house and sue you for that as well. Generally it is better *not* to do the short sale in your situation but I do not know if it is too late for you to back out of the deal. That might require a consultation with a real estate lawyer.
Answer Applies to: California
Replied: 2/9/2011
    Law Offices of J. L. Haddock, PLLC
    Law Offices of J. L. Haddock, PLLC | Jared L. Haddock
    You ask an excellent and very timely question. The short and simple answer generally is that a short sale is better than a foreclosure for many reasons that are difficult to enumerate in this limited forum (but, arguably this could depend on the context of the discussion - better in what sense?). The ramifications of each is a bit more complicated of a matter and depends largely on certain factors, such as the relevant jurisdiction you are in, whether there is a second mortgage or lien involved, whether a novation will absolve any future obligations on your behalf, whether the mortgage was reaffirmed in your 2005 Chapter 7 case, etc.

    I know this probably raises more questions than it answers, but one really should consider all aspects of their options and it is difficult to analyze the options with any real validity without a whole picture. I would recommend that you contact an attorney for an in-person consultation (perhaps the one that represented you in the Chapter 7).
    Answer Applies to: Michigan
    Replied: 2/9/2011
    Gus Johnson Attorney at Law
    Gus Johnson Attorney at Law | Gus Johnson
    Not simply a bankruptcy question, I can't address it in this format.
    Answer Applies to: South Dakota
    Replied: 2/9/2011
    Ursula G. Barrios Law
    Ursula G. Barrios Law | Guillermo Machado
    Short sale is always better than foreclosure.
    Answer Applies to: California
    Replied: 2/9/2011
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