Starting with the inability to obtain a new loan for a home because a foreclosure stays on your credit record usually for up to 7 years. Even renting will become more difficult as your credit score would be affected, and you often have to disclose a foreclosure on a rental application. Foreclosures can also last a long time (up to 7 years as mentioned above), making you wait years to even qualify for a new mortgage. With a foreclosure, you face all kinds of ramifications with your credit. Buying a car and renting a house may be impossible through the normal bank loan routes. If you work with money at your job you could even face termination if your employer puts a lot of stock in that kind of thing (most employers won’t but it has been done before). A short sale relieves the debt that is left over from what is owed on the mortgage, letting both the bank and the seller move on. A short sale is also easier on your credit score, which can allow a homeowner the ability to recover in the long run. Your credit report will only show a pre-foreclosure status, which reduces your credit rating minimally compared to a foreclosure. Main lenders are willing to put a debt forgiveness clause in the contract, eliminating any balance owed on the mortgage but if foreclosed it can create a Deficiency judgment which stem from the fact the borrower defaulted on a promissory note, not the mortgage. A promissory note is a promise to pay. It can also create personal liability, depending on state laws.
