Which is worse? A foreclosure, a short sale, or a bankruptcy? | Plainfield Real Estate

While I'm not a lawyer or a mortgage broker, I have done a little research on the topic of Illinois foreclosure and short sales for my clients over the last several days. I must admit that I was a little surprised by the range of answers that I found on the Internet in regard to alternatives to foreclosure.

That being the case I decided to go straight to the source at MyFico.com. Basically, A Plainfield short sale and a foreclosure will both damage your credit score to nearly the same extent, about 100-200 points. The difference is really in the recovery time; the time in which your credit score actually begins to improve.

That sounds like pretty crappy news, huh? Yeah, I was pretty surprised by that realization too, but after a little more digging both, a foreclosure and short sale in and of themselves, are much better alternatives to compounding those situations with a bankruptcy.

Even with a foreclosure or a short sale it will be about 2 years before you start to see your credit score improve and both will appear on your credit for 7 years. According to MyFico.com a short sale won't necessarily be any better than an actual foreclosure if you are over 90-120 days before you are able to negotiate a short sale to the closing table. On the other hand if you can get everything wrapped up before the 120 day mark you can avoid additional hits to your credit.

The bad news? Both foreclosures and short sales show up as over 120 days late. The good news? Their impact on your credit begins to diminish after 2 years, and many people can qualify for a reasonable interest rate after 2 years with a short sale; and 3-5 years after a foreclosure. Depending on your long term game plan, you would need to decide how long you are willing to wait before you were able to purchase another home.

A bankruptcy compounds credit problems because even credit and credit cards that were previously current become affected as non-performing accounts. I believe it is reasonably safe to say, based on that information, that a bankruptcy compounded with a foreclosure will have a more derogatory affect on your credit than a foreclosure or short sale alone... although I just want to mention again that I am not an attorney. :)

I personally think that a short sale is still better than a foreclosure, and that a foreclosure should be avoided at all costs. Still, I guess it all depends on your long term plans.

If you are considering a short sale, I do have a team of professional negotiators working through an attorney's office to assist me in selling your home. You can reach me at 630-673-6233 or at JT4NZ @ msn.com.