Foreclosure vs. Short Sale vs. Deed in Lieu

I've been talking to my mortgage broker, and while I think he's great at what he does, he's telling me the credit score impact from a foreclosure, short sale, and deed in lieu is all the same. I guess that has not been my impression all along. After all, what then is the incentive to short sell or do a deed in lieu, if it all looks the same on your credit history. A foreclosure is a lot less headache and red tape than a short sale, that is for sure.

Any thoughts here? I'm trying to be mindful of my credit, while at the same time weigh options on how to best manage settlements of my unsecured debt, HELOC, and the loss of my property. So if anyone know what the real difference between these three on my credit score would be, and how significant of a difference it is (if any), that would be great.

Anyone... anyone? Bueller?

We're wondering the same exact thing. I wish there was an article on this but I can't find anything. So far, we're pursueing a short sale and simultaneously tarting the deed in lieu process on our home. We live in Michigan and are upside-down by at least $50K - that's 80K less what our home appraised for in 2004! We spoke with a banker today who said the least harmful process on our credit would be the short sale, then deed in lieu, and then a foreclosure. But an attorney told us the exact same thing as your mortgage broker. So confusing and what a pain in the ...! Good luck to you.

I spoke with a broker and she said short sale is the least harmful, it only stay on your credit up two to three years, foreclosure will stay on your credit up to seven years. She said short sale is much better because of the new "forgiving tax"

I've googled this issue a couple of times, and from what I can tell, it's a mystery. You can even go to the website of some of the credit agencies and look in some of their Q&A areas, and they just talk around the issue without answering it.

I talked to my broker again, and he now is indicating that there's really not much of a difference on your credit score, BUT that with a foreclosure on your record it precludes you from getting a "conventional" loan for four years. He said that with a shortsale, it's probably more like 2-3 years before a lender would give you a conventional loan.

As for how long they stay on your credit report, I'm pretty sure a short sale stays on for a full seven years, but that it won't preclude you from getting a new conventional mortgage after 2-3 years. I believe that is what most RE agents and brokers mean when they say it's only on your credit for 2-3 years.

I'm not sure about the "forgiving tax", as I've never heard of it. But I did talk to my CPA about my situation and the different tax consequences for a foreclosure vs short sale. He indicated that there was no difference. But I suggest everyone talk to their own tax person.

Perhaps they mean this?