If you have fallen behind on your mortgage payments and feel you may lose your home, there are numerous options available for you to consider. When other alternatives do not work for your situation, trying to short sell your house or going through foreclosure are avenues you could pursue.
Similarities Between These Options
Following either a short sale or a foreclosure, your credit score will be affected. However, your score could be damaged less if you opted for a short sale and your mortgage went fewer months without having any payments made towards it.
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Major Differences
If your mortgage company decides to accept the net amount you received from the short sale, but it does not completely cover the amount you owe on the mortgage, and the IRS will take this into account. The IRS will count as income any difference between what you owed on the mortgage and for how much the house actually sold for. You may also be able to avert tax liability.
If your house is sold under foreclosure, there will be no tax liability because there was no consultation with the mortgage company.
Later on, if you wish to purchase a house, you will only have to wait approximately 2 years after a short sale but up to 6 years after a foreclosure. Also following a foreclosure, your credit rating will remain at its post-foreclosure level for a minimum of seven years. However, your credit score following a short sale may not be as severely affected.
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