Some say a Hobson's choice is a take it or leave it choice.  I say a Hobson's choice is one where all the choices lead to different things, equally bad.

And, so it is with losing your home - foreclosure, short sale or deed-in-lieu of foreclosure. How will one of these choices affect your credit? Is one of them better for your credit rating than the other?  A few answers follow.

Some have said that the choice between them is like the difference between being hit by a train a bus or a truck. No matter what you get squished.

Effect on Credit Rating.  Foreclosure or Deed-in-Lieu of Foreclosure

Some say the seller will take a hit between a 200 and 300 drop in credit rating or FICO. Either choice will cause negative marks on your credit. How much depends on your individual situation.  

Short Sale

If you are 60 days (or in some cases 30 days) delinquent on your note, the dip in your credit rating will be the same as if you had allowed foreclosure or given a deed-in-lieu of foreclosure.  Your credit report will say "not paid as agreed" and/or pre-foreclosure redemption status.

Short Sale / Foreclosure Deficiency Judgments

If you can negotiate a short sale without the possibility of a deficiency judgment your ahead of the game. The bad news is in Nevada a first mortgage has 6 months from the Trustee�s sale to file an action for a deficiency judgment. A deficiency judgment is the difference between the loan amount and the amount paid at a trustee's sale or by a short sale. A junior lienholder, second, third mortgages, Home Equity Lines and the like, have six years in which they can file suit for the deficiency.

Of course a lender doesn't have to  pursue a deficiency judgment just because it can. It may decide that the debtor - homeowner has no assets worth suing for.

If you're a seller and can't decide whether to let a home go through foreclosure or to  attempt a short sale, you may gain little or no advantage with a short sale, especially if you're behind in your payments.  And, most people doing short sales are months behind.

Most likely there's no credit score advantage for a delinquent borrower on a short sale over a foreclosure." Some think there may be an  advantage regarding more favorable rates or lending conditions to borrowers who short sale. The rules are changing so fast, anything is possible in the coming months and years.  My opinion is it doesn't really matter.

The all important FICO is the thing.  FICO seems to say it doesn't really matter, go to myfico.com to see a little more.

For a more personal approach call David Otto at 702-379-6540