A short sale is a process in which you sell your home for an amount that is less than what is owed on the mortgage. The lienholder of your mortgage must agree to this type of sale and in many cases, the borrowers are still not released from their obligations to repay the deficiencies on the loan after the short sale has been completed. However, it is a viable alternative to foreclosure because many banks find this to be a more attractive settlement than having to go through the process of foreclosure, including the fees related to a foreclosure.
A few of the benefits of a short sale in place of a foreclosure (for you, the borrower) are:
A foreclosure, on the other hand, is a process in which the bank takes over the property and handles the re-sell of your home. The result is that your credit score will likely fall anywhere from 105 points to 160 points and the foreclosure will remain on your credit report for 7 years. Obviously, a foreclosure is the worst of the two options and should be avoided if a short sale is possible.