While the terms short sale and foreclosure have been used frequently in the real estate world over the last few years, the general perception from most is that they both affect your credit equally. So when push comes to shove, some people elect to wait the inevitable foreclosure process out rather than seek the help of a qualified real estate agent and legal council.

I recently read an article written by Steve Wilde with Wilde Law Firm, an attorney expert on short-sales debunking this myth. What I found in the article was interesting and I wanted to share of few of the points he made.

1) When you successfully close on a short sale, your credit report for that sale shows “loan paid in full”, with a note stating the borrower took less on the sale than what was owed to the bank. Simply meaning, the bank ate up a portion of what was owed due to proof the owner had some type of hardship making it difficult to make the mortgage payments.

Will this hurt your credit?  Sure, but with the right help, you can get this cleaned up and likely only be looking at 2 to 3 years before being able to get a Fannie Mae backed loan. Otherwise, it will remain on your credit report for 7 years. With a foreclosure, the word “foreclosure” will be used on your credit report”,  remaining for a guaranteed 7 years.  During this time you will not be able to get a Fannie Mae backed loan.  Mr. Wilde states that he has talked with experts who have seen those who have gone  through the short sale process keep credit scores in the 700’s.

2) Tax and deficiency issues are present with every short sale and foreclosure. When a short sale is performed, these issues go away. With a foreclosure, you are not protected from these issues unless you fall in one of the three states who do protect. This means in the end you could still have issues to be dealt with.

While neither is the most ideal for any seller, his points show that the time and effort, and sometimes lots of it, make the short sale ideal if possible.  Because in the end, with the right step, your credit will be less affected and you will not have to deal with the long term financial mess created from a foreclosure.

*I am not an attorney so therefore the information above should not be taken as legal advice. Contact an attorney for legal advice.