Can’t afford your mortgage and don’t want to foreclose? Try a short sale! When doing a short sale, it normally means you sell as quickly as possible, but under a profitable rate, so of course not all lenders will comply as they will be accepting less then the amount owed. However, at times it can be in their best interest to agree. For example, a bank might agree in order to avoid having a problem with their accounting books, sending a property to foreclosure can be quite a hefty fee, possibly ranging as high as $25K.

What the lenders usually think about is the following:

• If a short sale is not made, could the owner still be possibly able to make payments? (No lender will consider it unless the seller has been default in making payments) If so, it makes more sense for them to have the borrower keep paying.
• Can they get the most return/money back by foreclosing or short selling, and which would be the most time consuming (contrary to most popular belief, most short sales do not close within 30 days) although foreclosures themselves are no walk in the park.

For the home/property owner themselves: why is a short sale more preferable?, as in no way will they receive any profit whatsoever from the proceeds, in fact they could potentially end up with taxable income for the amount of the forgiven debt (for ex, if the home/prop. owner owes 120 K and the bank allows them to short sale for 130K, they could be taxed on that 10K default) They could also face a definite mark in their credit history.

• The simple answer is that the credit detriment of a short sale is far less then that of a foreclosure.

According to About.com as far as actual points go with a credit score, a foreclosure can cause a drop of 250 to 280 points while with a short sale it is from 80 to 100 points.  Waiting periods must also be thought of, with a former foreclosure on their records most must wait an average of 36 months before being remotely able to receive any kind of worthy loan interest offer if trying to buy again, and in contrast it is only about 18 months for short sales.

• Also, with foreclosures, it shows twice on your credit history, in the trade line and public records. Any entries made in with the trade line, can be shown on the person’s history for 7 years or more, and with public records this can be a definite cause for embarrassment with friends, family, business partners, etc.

Please note that while short sales are more commonly thought to be solely associated with for looming foreclosure, there can be exceptions, especially with the market in this moment, or if someone is desperately needing to sell for a personal reason.